A group of Republican attorneys general has sued the Securities and Exchange Commission over the agency’s regulatory approach to digital assets.

The process was DEPOSIT late Thursday with a federal court in Kentucky. The plaintiffs include 18 state attorneys general, as well as the DeFi Education Fund, a digital asset advocacy organization. The complaint names not only the SEC but also its five commissioners as defendants.

The plaintiffs accuse the agency of regulating digital assets in a way that exceeded its authority. According to the lawsuit, the SEC’s regulatory approach is flawed in several ways.

The plaintiffs’ first argument concerns the fact that the SEC considers many purchases of digital assets to be securities transactions. This is significant because securities transactions are subject to numerous regulatory requirements. In recent years, the SEC has sued several cryptocurrency platforms for not complying with these requirements.

One of the agency’s best-known processes is complaint filed against Coinbase Inc., the largest U.S. cryptocurrency exchange, last June. The SEC charged that the company violated regulations by failing to register as a securities exchange, broker and clearing agency. A stock exchange is a platform through which securities are sold, while brokers and clearing agencies handle the logistics of making trades.

In this week’s lawsuit, state attorneys general argue that the SEC should not treat sales of digital assets as securities transactions. They do not qualify as securities transactions because they “do not involve any traditional investment relationship, in which the investor invests capital and the promoter undertakes an ongoing obligation to use that capital in a joint venture to generate profits that the investor will share “. the process argues.

Plaintiffs argue that there is another reason why the SEC’s regulatory approach is incorrect. According to the lawsuit, the agency’s reasoning for classifying digital asset transactions as securities would theoretically apply to an “unlimited range of other assets, from collectibles to luxury goods and beyond.” However, the agency’s regulatory responsibilities do not extend to such items.

The lawsuit continues and claims that the way the SEC is going about regulating digital assets hinders the ability of states to implement their own rules in this area. “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 complaint states.

The plaintiffs also take issue with the SEC’s failure to formalize its regulatory approach to digital assets in a written rule. This “leaves current and potential industry participants scrambling to discern what legal obligations they might incur,” the suit says.

The plaintiffs are asking the court for an order requiring the SEC to change its regulatory practices in the digital asset sector.

Photo: photos by weiss paarz/Flickr