Crypto legal firms plan counteroffensive against the SEC

Crypto legal firms plan counteroffensive against the SEC

Since the collapse of Crypto Exchange FTX, the top US financial regulator has been on the warpath, suing industry players large and small.

industry lawyers, tired of playing defence, are planning a counteroffensive.

Amanda Tuminelli, the chief legal officer at DeFi Education Fund, plans to marshal other crypto advocacy groups and businesses to strike first, and take legal action that could, theoretically, force the Feds to provide the'regulatory clarification' the industry has long craved.

options include challenging the way federal agencies are making rules under the Administrative Procedure Act, an arcane but important law that allows the public to have their say on fine print.

Other moves entail challenging the rules themselves after they're finalised, petitioning regulatory agencies to make rules favourable to crypto and filing so-called pre-enforcement challenges, Tuminelli said.

Tuminelli is not alone. She said she has discussed the strategy with the Blockchain Association, the nation's top lobbying group in Washington, and other attorneys.

We've been thinking about it for a while, said Marisa Coppel, senior counsel at the Blockchain Association.

The crypto legal industry has been emboldened by a recent string of court victories, Coppel said.

In July, Ripple beat the SEC when a court ruled that the programmatic sales of the XRP token used on its platform were not securities transactions.

The next month, Grayscale won a unanimous ruling from a three-judge appeals court that found that the SEC erred in denying the asset manager's application to convert its listed Bitcoin trust into an exchange-traded fund.

Brad Garlinghouse, the CEO of Ripple Labs, urged his colleagues to take on the government in court, instead of agreeing to pay a penalty.

The chair of the SEC said last week that he went out and said that they are winning these cases. Despite the losses, Gensler maintains that securities laws already on the books apply to the vast majority of digital assets.

Gensler testified before the House Financial Services Committee on Wednesday.

The industry demands to differ. It has implored Congress and the SEC to, at a minimum, provide regulatory clarification for a novel asset class.

The big hope is that Congress will make laws that recognize the unique characteristics of blockchain-based assets and treat them separately from stocks and bonds.

The Democratic nominee, Ritchie Torres, a Democrat from New York and one of the most crypto-friendly lawmakers in Washington, assailed the SEC last week at a conference organised by blockchain research firm Messari.

A well-chosen lawsuit could force the government's hand, Tuminelli said. But she needs to find the right plaintiff first, she said.

re doing it, she said.

In a pre-enforcement challenge, the plaintiff contends that a regulator's history of suing similar companies gives it reason to believe it, too, will find itself in that regulator's crosshairs.

Moreover, some in the industry are furious at the government's request for rule-making. But Tuminelli maintains that, too, is worth a shot.

A legal counter-offensive is the industry's best option at this moment, given the current state of the state's gridlock. But it's a costly, time-consuming process.

In practical terms, Ripple's victory in court means little to other firms.

The SEC is pondering whether to appeal the ruling in the Ripple case, potentially setting the stage for another courtroom clash in the second quarter of 2024.

Tuminelli said she is still searching for crypto businesses that may serve as ideal plaintiffs. But if Tuminelli found ideal plaintiffs, recruiting them to a legal crusade is by no means a given. Tuminelli said the firm would have to be willing to draw the ire of the Feds.

And buoyed by the courtroom triumphs of the summer, a strategy to counter Gensler's crackdown is gelling in the crypto legal community. Editor's note: You can contact the author at