[co-author: Stephanie Kozol]*
On February 29, the state of Montana, supported by seven other states, filed an amicus brief arguing that the Securities and Exchange Commission (SEC) lacks authority to regulate crypto assets. The attorneys general (AG) submitted the brief in response to the SEC’s enforcement action alleging violations of the Exchange Act against Payward, a secondary market crypto platform. The AGs argue that the SEC’s position, with respect to regulating the crypto market, may potentially preempt consumer protection and other state laws, thus disrupting the traditional division of powers between the states and the federal government.
The amicus brief urges the court to consider historical definitions and applications of “investment contract,” arguing that the SEC lacks authority to regulate crypto assets absent an express congressional delegation of authority, and the Exchange Act was not designed to serve as general-purpose consumer protection statutes covering all asset purchases. The brief also argues that the SEC’s broad interpretation of “investment contract” could preempt important state laws that offer more consumer protection than federal securities laws, and could result in preemption of several state laws regulating crypto assets, thus stifling state police power and legislative innovation.
The AGs also challenge the SEC’s authority to regulate crypto assets on the grounds that such regulatory action implicates the major questions doctrine, which presumes that Congress intends to make major policy decisions itself, not delegate those decisions to agencies. Because the SEC’s regulation of crypto assets is economically and politically significant, the AGs argue that the SEC requires clear congressional authorization to engage in regulatory oversight.
Why It Matters
In the absence of a comprehensive federal regulatory regime for crypto assets, the SEC has taken an expansive view of which digital assets it considers to be an “investment contract” subject to federal securities laws. In the absence of a such a regime, crypto asset firms are left facing high levels of regulatory uncertainty and lack a clear path to achieve full legal compliance. Nonetheless, the SEC continues to bring enforcement actions against industry participants. The AGs’ amicus brief suggests that the SEC’s attempts to exercise regulatory authority over crypto assets may face increased opposition from other regulators and market participants.
*Senior Government Relations Manager
