On July 10, the attorneys general (AG) in Iowa, Arkansas, Indiana, Kansas, Montana, Nebraska and Oklahoma released an amicus brief in the U.S. District Court for the Northern District of Texas supporting neither party but instead critiquing the SEC’s regulatory powers. The state AGs believed the SEC had gone “too far” in its attempt to regulate crypto-assets. The brief stated that the SEC started a “scorched-earth litigation” campaign instead of engaging in the typical notice-and-comment rulemaking. The AGs argued that the SEC decided on its own merit, without congressional authorization, and by ignoring the Administrative Procedure Act (APA), which stated that its job would be to regulate crypto-assets.

The brief outlined three arguments to support its critique. First, the AGs argued that the SEC asserted its enforcement powers unlawfully by violating the APA, and its actions threatened to preempt state laws if the SEC made crypto-asset investment contracts under federal securities law. Second, the AGs argued that crypto-assets were not investment contracts under the Howey test and thus cannot be regulated by SEC regulation. The AGs also asserted that the SEC lacked clear congressional oversight, and its attempted overreach invoked the major questions doctrine and federalism canon. Lastly, the AGs argued that even if Congress authorized the SEC to regulate crypto-assets, then Congress would have exceeded its constitutional authority by allegedly violating Article I because (i) the Securities Act provided no “intelligible principle” for determining if something was an investment contract or not; and (ii) crypto-asset investing did not implicate either foreign or interstate commerce.

The state AGs asserted they filed this brief to protect consumers from unreasonable regulations “imposed by the whims of a rogue federal agency.” They urged the district court to reject the SEC’s enforcement of crypto-assets “absent an investment contract.”