SEC’s Unlawful Targeting of Digital Asset Industry Challenged in New Lawsuit From Startup LEJILEX and Crypto Freedom Alliance of Texas
Texas lawsuit seeks confirmation that most digital asset sales are not subject to SEC enforcement
Lawsuit follows years of overreaching SEC enforcement actions that have undermined the digital asset industry and American technological innovation
LEJILEX’s proactive approach protects the company from erroneous SEC enforcement actions prior to initiation of operations
FORT WORTH, Texas–(BUSINESS WIRE)–LEJILEX, an emerging digital asset company, and Crypto Freedom Alliance of Texas (“CFAT”), a nonprofit trade association that advocates for the responsible development of digital asset policies in Texas, filed a complaint today against the Securities and Exchange Commission (“SEC”), challenging the agency’s unlawful assertion of regulatory authority over practically all digital asset transactions in Texas and the United States. This case, filed in anticipation of CFAT member company LEJILEX launching a new digital asset trading platform, seeks confirmation that transactions in digital assets on this platform are not sales of securities that are subject to SEC registration requirements. In doing so, they hope to end years of misguided SEC policy that is actively harming law-abiding American businesses.
In the complaint, filed today in the United States District Court for the Northern District of Texas, LEJILEX and CFAT – represented by Clement & Murphy, PLLC and Duane Morris, LLP – outline how the SEC has usurped near-total jurisdiction over the digital asset industry, despite several SEC Commissioners themselves acknowledging that Congress has never granted their agency authority to do so.
The SEC not only lacks legal authority to regulate most digital asset transactions, but has proven it is unprepared to respect the limits Congress has put on its jurisdiction or even to develop and enforce common sense and consistent regulations for this emerging industry, relying instead on regulation via ad hoc enforcement actions. The SEC’s unlawful, unpredictable approach has created an environment in which companies like LEJILEX are unable to operate without fear of being subject to SEC enforcement actions – leaving a trillion-dollar industry and law-abiding individuals in a state of uncertainty while diminishing the United States’ leadership in this critical sector.
As the complaint explains, despite repeated pleas from industry participants, the SEC has refused to provide “any definitive regulation that would afford industry participants clear ex ante guidance” on what digital assets transactions fall within its scope. Instead, the SEC has used one-off enforcement actions to assert an “overly broad view of its own authority” – a view that “fails as a matter of statutory text, history, precedent, and common sense, and would allow the SEC to unilaterally seize control over a trillion-dollar industry without anything like the clear statutory mandate necessary to justify such a massive expansion of agency power.”
To justify their ad hoc enforcement actions, the SEC claims that practically all digital assets qualify as securities under the SEC’s purview because they represent “investment contracts,” a catch-all category within the definition of security. In this lawsuit, the plaintiffs seek a judicial declaration that sales of digital assets like the ones that would take place on LEJILEX’s platform are not securities transactions. As the plaintiffs’ complaint explains, these transactions do not fit the definition of “investment contracts”; if they did, the SEC’s authority would be virtually limitless, covering any purchase of an asset that might appreciate in value. For example, the SEC’s view of its own authority would apparently mean that buying a pair of limited-run Nike sneakers with the intention of reselling them, while expecting that Nike would continue working to increase demand for those coveted shoes, would be enough to turn those sneakers into securities, their resale into a securities transaction subject to regulation by the SEC, and any auction house or consignment store that helps resell them into an unregistered securities exchange.
“We wish we were launching our business instead of filing a lawsuit, but here we are,” said Mike Wawszczak, Co-Founder of LEJILEX. He continued, “The SEC’s rogue enforcement actions targeting our industry have paralyzed those of us who just want to build lawful businesses and technologies. Fear of rogue enforcement should not be a thing entrepreneurs are forced to experience. We hope our action encourages the SEC to reconsider its regulatory approach, and we welcome them to work with us and our industry to ensure the most important technologies of the future are built here in America, under American laws, consistent with American values.”
About Crypto Freedom Alliance of Texas: Crypto Freedom Alliance of Texas is a nonprofit trade association that advocates for the responsible development of digital asset policies in Texas that will foster innovation and economic growth, while protecting consumers. We believe blockchain technology paves the way for the next generation of the internet and that Texas has a lot to gain from being a leader in digital asset policy. CFAT counts as members several companies at the forefront of digital asset innovation, including Coinbase, a16z Crypto, Ledger, Paradigm, and Blockchain Capital. Learn more at https://cryptoalliancetx.org/.
About LEJILEX: LEJILEX is a Texas-based, for-profit company that has developed a novel digital asset platform called the Legit.Exchange, a non-custodial digital asset trading platform that allows users to trade digital assets. We are actively participating in growing the crypto community in Texas through our relationship with Crypto Freedom Alliance of Texas.
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