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According to reports, Fort Worth-based crypto company Lejilex and the industry group Crypto Freedom Alliance of Texas (CFAT) have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), arguing that the agency has asserted jurisdiction over the digital asset industry without a “clear statutory mandate.”
The plaintiffs are asking a judge to rule that digital assets traded on exchanges are not securities. Lejilex wants the court to rule that listing pre-existing tokens will not violate securities laws.
“We wish we were launching our business instead of filing a lawsuit, but here we are,” Lejilex co-founder Mike Wawszczak said in a statement.
Lejilex says it seeks to run a cryptocurrency platform called Legit.Exchange. The company, formed last year, said it plans to list digital assets including some the SEC has described as securities in its lawsuits against Coinbase (COIN.O) and Binance. Both Coinbase and Binance have denied the SEC’s allegations. A spokesperson for the SEC did not immediately reply to a request for comment.
CFAT asked the court to block the SEC from suing its members, and said the agency’s position on digital assets has made it harder to advance crypto policy with Texas lawmakers. The group launched last year and counts Coinbase and venture capital firm Andreessen Horowitz’s a16z crypto fund as members.
CFAT and Lejilex argue that digital assets should not be classified as “investment contracts” because they create no ongoing commitment between creator and purchaser. The SEC, for its part, has maintained in its enforcement cases that many tokens are offered and sold as investment contracts under existing securities law. Courts have not settled the question: a judge in July rejected the argument that an ongoing commitment is required to make an asset a security in the SEC’s case against Ripple Labs, and another judge overseeing the agency’s lawsuit against Terraform Labs found the “major questions” doctrine does not apply to the cryptocurrency industry. Both of those cases were brought in New York.
The plaintiffs have asked the court to apply the “major questions” doctrine, which lets judges invalidate executive agency actions of “vast economic and political significance” unless Congress clearly authorized them.
The case was filed in federal court in Fort Worth and assigned to U.S. District Judge Reed O’Connor. Any appeal would go to the 5th U.S. Circuit Court of Appeals. Paul Clement, a former U.S. Solicitor General, represents the plaintiffs.