SEC Lawsuit Paused as States Await New Leadership

A federal judge has agreed to pause an ongoing lawsuit between 18 state attorneys general and a decentralized finance lobbyist group against the U.S. Securities and Exchange Commission (SEC). The decision came after the parties noted the SEC's new leadership. The state attorneys general, all Republicans, had filed the lawsuit alongside the DeFi Education Fund last November. They alleged that the federal securities regulator had exceeded its authority in filing lawsuits against crypto exchanges.

In a recent filing, the SEC suggested that Paul Atkins' confirmation as the new agency chair could potentially resolve the litigation. The judge ordered the parties to file a joint status report within 30 days but paused all deadlines for 60 days. The original lawsuit argued that the SEC's enforcement actions were intruding on state regulators' abilities to police digital asset firms within their own borders.

Some states have enacted regulatory regimes for financial institutions focused on digital assets, while others have required digital asset platforms to obtain money-transmitter licenses and security bonds to guarantee liquidity. The lawsuit emphasized that state regulatory approaches have varied in accordance with local needs but have consistently endeavored to provide transparent and administrable rules. Congress has repeatedly declined proposals to give federal agencies broad regulatory power over digital assets.

Congress is expected to address market structure legislation that may define federal regulators' roles in overseeing crypto this year, with key committees already holding hearings. In the meantime, the SEC has already dropped investigations and lawsuits into more than a dozen companies and paused lawsuits against a few others.

A separate lawsuit filed by the DeFi Education Fund, the Texas Blockchain Council, and the Blockchain Association against the Internal Revenue Service was also dropped. This lawsuit argued that the IRS's DeFi broker rule went beyond the agency's authority. Trump signed a joint House and Senate resolution under the Congressional Review Act nullifying this rule last week, making the lawsuit moot.

The pause in the lawsuit against the SEC reflects a strategic move by the Republican states, potentially aiming to reassess their legal approach in light of the new leadership at the SEC. The 60-day pause provides an opportunity for both sides to evaluate the situation and consider alternative resolutions. This development underscores the ongoing debate over the regulatory authority of federal agencies versus state regulators in the rapidly evolving digital asset landscape.