Exclusive: Legal troubles are mounting for Wall Street’s top cop.

On Thursday afternoon, 18 states sued the Securities and Exchange Commission and its five commissioners, accusing them of unconstitutional overreach and unfair persecution of the $3 trillion cryptocurrency industry under agency chief Gary Gensler, it was learned FOX Business.

The lawsuit was filed jointly in a district court in Kentucky by 18 Republican attorneys general from Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma and Florida. The complaint was filed in collaboration with crypto advocacy group DeFi Education Fund, which advocates for robust policy in the decentralized finance space.

SEC Chairman Gary Gensler attends a meeting of the Financial Stability Oversight Board at the U.S. Treasury on July 28, 2023 in Washington, DC (Kevin Dietsch/Getty Images/Getty Images)

Specifically, the lawsuit claims that the agency’s industry-wide crackdown on US crypto companies violates fundamental principles of federalism that ensure government agencies operate within their constitutionally defined roles. Gensler said most cryptocurrencies, other than bitcoin and ether, are securities and fall under the SEC’s control. But the industry, its legal backers and many members of Congress believe Gensler is overstepping the mark and that at least some cryptocurrencies are commodities that fall under the oversight of the SEC’s sister agency, the Commodity Futures Trading Commission.

Given the lack of clear rules and a clear regulatory body, the industry has operated somewhat in a regulatory vacuum while being targeted by the SEC.

The SEC had no immediate comment.

The Eighteen State AG argues that by imposing penalties and restrictions on digital asset platforms without adequate regulatory frameworks, the SEC’s actions have introduced “significant risks” to one of America’s fastest-growing economic sectors. This approach, they argue, stifles innovation, disrupts the financial industry and replaces state-led regulatory efforts better suited to protecting consumers and spurring economic growth.

The headquarters of the Securities and Exchange Commission is seen in Washington, DC on January 28, 2021. (SAUL LOEB/AFP via Getty Images/Getty Images)

The SEC’s approach to regulating digital assets has sparked a nationwide effort by the industry to make digital assets part of the 2024 election.

“Last week, the American people went to the polls and resoundingly rejected the arming of the federal government,” said Kentucky Attorney General Russell Coleman. “The Biden-Harris administration’s illegal crackdown on cryptocurrency has targeted tens of millions of ordinary people who participate in this vibrant digital marketplace. Together with Conservative AGs across the country, we’re taking this challenge to cut red tape down to size. “

The lawsuit says the SEC’s actions violate states’ rights to regulate their own economies. In their complaint, the plaintiffs argue that the SEC’s regulatory cap is unconstitutional, citing federalism and separation of powers principles.

“Fundamentally, the SEC’s regulatory cap defies basic principles of federalism and separation of powers… the SEC’s claim to expand jurisdiction without congressional authorization deprives states of their proper sovereign role and inhibits the development of innovative regulatory frameworks for the digital asset industry,” , the file shows. “And worse, by trying to shoehorn digital assets into inappropriate federal securities laws and inadequate disclosure regimes, the SEC is harming the very citizens it purports to protect by superseding more appropriate state laws that were carefully designed to ensure consumer protection. in the digital asset industry”.