A federal court in Texas has invalidated a recent Securities and Exchange Commission rule that broadened the definition of a securities dealer to encompass a wider range of firms, including those in the cryptocurrency sector. This significant legal defeat for the SEC comes on the same day its Chairman, Gary Gensler, announced his departure in January. In response to a lawsuit filed by the Blockchain Association and the Crypto Freedom Alliance of Texas, a judge in the US District Court for the Northern District of Texas handed down an early decision, criticizing the SEC for overstepping its legal authority.
The court ordered the rule to be struck down. According to the ruling by Judge Reed O’Connor, 'The SEC exceeded its statutory authority by enacting such a broad definition of dealer untethered from the text, history, and structure of the Exchange Act.' The judge, who had previously presided over a Consensys lawsuit against the SEC, issued an order stating that none of the final rule approved in February can stand. An SEC spokesperson stated, 'We are reviewing the decision and will determine our next steps as appropriate.' The SEC’s rule was one of several initiatives undertaken during Chair Gensler’s tenure aimed at reinforcing the agency’s authority over crypto businesses. The expanded definition of dealer included crypto operations, which the industry argued was vaguely worded and would have imposed unrealistic demands on decentralized finance (DeFi) and unfairly captured crypto traders who did not offer dealer services.
The Blockchain Association and the Texas group swiftly filed a lawsuit, and the court’s rapid response marks a significant legal victory against the agency. Gensler’s departure announcement referenced the agency’s clashes with the crypto industry, noting that 'court after court agreed with the Commission’s actions to protect investors and rejected all arguments that the SEC cannot enforce the law when securities are being offered — whatever their form.' Kristin Smith, CEO of the Blockchain Association, hailed the ruling as a victory for the entire industry, stating, 'The dealer rule was an attempt by the SEC to advance its anti-crypto crusade, unlawfully redefining the boundaries of its statutory authority granted by Congress. Following today’s ruling, the agency’s overreach is rolled back, and the digital asset industry is protected from this unlawful rule.'