SEC faces pushback from states over crypto regulations in Kraken case

Several US state attorneys general and pro-crypto factions have lodged amicus briefs opposing the Securities and Exchange Commission’s (SEC) case against Kraken.

Montana, others brief against SEC

On Feb. 29, a coalition of state attorneys general from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas jointly submitted a brief that does not support either party but challenges the SEC’s stand in the case.

An analysis of the filing by Paul Grewal, Coinbase Chief legal officer, pointed out that the states alleged that the “SEC’s ‘ecosystem’ theory was unlawful and in fact a danger to their citizens.”

He said:

“[The] States have a strong interest in preventing the potential preemption of consumer protection and other state laws by the SEC’s attempt to regulate crypto assets as securities.”

The lawyer further highlighted that numerous states have established legal frameworks treating digital assets like money transmitters. According to him, such entities must register, meet minimum net worth requirements, ensure ample security measures, and submit to regulatory examinations.

However, these state-level regulations face potential preemption risks with the SEC actions.

Pro-crypto lawyer Bill Morgan added that the amicus brief showed that “the whole world is against the SEC’s overreach in crypto except a few people such as Elizabeth Warren with agendas and motives that are anything but a concern with consumer protection.”

Pro-crypto groups step in.

Besides the state attorneys general, several pro-crypto groups, including the Chamber of Digital Commerce and the Blockchain Association, also made similar filings against the SEC.

In its filing, the Chamber of Digital Commerce argued that the SEC’s expansion of securities laws threatens blockchain technology. So, the group urged the court to end the SEC’s attempt to regulate the emerging industry without legislative authority.

Blockchain Association and the DeFi Education Fund made similar arguments in their filing. They stated:

“The brief critiques the SEC’s attempt to regulate digital assets beyond its authority granted by Congress. The agency’s inconsistent stance on investment contracts lacks legal precedent and is creating widespread confusion in the industry.”