In a coordinated effort that underscores growing unease among state law enforcement officials, a bipartisan group of seventeen state attorneys general has publicly urged the United States Senate to vote against the so‑called Clarity Act. The coalition, which includes both Republican and Democratic chief legal officers from a diverse range of states, argues that the legislation, while presented as a measure to bring greater certainty to the regulation of digital assets, contains provisions that could severely hamper their ability to prosecute fraud, securities violations, and commodities offenses that frequently arise in the rapidly evolving cryptocurrency marketplace. The Clarity Act was introduced in the Senate earlier this year with the stated aim of providing a clear, uniform framework for the treatment of virtual currencies under existing federal securities and commodities laws. Proponents claim that the bill would eliminate regulatory ambiguity, foster innovation, and protect investors by defining when a digital token should be classified as a security, a commodity, or something else entirely.
However, the group of attorneys general contends that the bill’s language is overly broad and, in practice, would impose new procedural hurdles that could delay or even prevent state‑level enforcement actions. According to the joint statement released by the seventeen AGs, the primary concern centers on the bill’s requirement that any securities‑related action involving digital assets must first be reviewed by a newly created federal oversight committee before a state can initiate its own case. This pre‑emptive review process, they argue, would effectively give the federal government a veto power over state prosecutions, undermining the traditional balance of power that allows states to act swiftly against local scams and fraudulent schemes.
In many instances, cryptocurrency fraud victims are located within a single state, and state attorneys general have historically been the first line of defense, leveraging state consumer‑protection statutes and securities laws to obtain injunctions, restitution, and criminal penalties. The statement also highlights the risk that the Clarity Act could create a chilling effect on ongoing investigations. Many state AG offices are currently engaged in multi‑jurisdictional operations targeting fraudulent initial coin offerings (ICOs), Ponzi schemes, and deceptive DeFi platforms.
These investigations often rely on the ability to issue subpoenas, freeze assets, and coordinate with local law‑enforcement agencies without waiting for federal clearance. By inserting an additional layer of federal oversight, the bill could slow down the investigative process, allowing perpetrators to move assets offshore or re‑brand their schemes before state authorities can intervene. Beyond procedural concerns, the attorneys general point out that the Clarity Act’s definition of “security” for digital assets is overly narrow, potentially excluding a large swath of tokens that exhibit the hallmarks of investment contracts.
The AGs warn that this narrow definition could leave investors unprotected in cases where a token functions like a traditional security—offering profit expectations based on the efforts of a promoter—yet falls outside the bill’s scope. In such scenarios, victims would have limited recourse at the state level, and the burden of proof would shift to a federal agency that may lack the resources or jurisdictional reach to address every individual complaint. The coalition’s letter to Senate leaders also references recent high‑profile cases that illustrate the importance of state‑level action. In 2023, a coordinated crackdown led by the New York Attorney General’s office resulted in the shutdown of a major fraudulent crypto exchange that had defrauded thousands of investors out of more than $200 million.
Similar actions in Texas, Illinois, and California have recovered assets, secured restitution for victims, and set legal precedents that deter future misconduct. The AGs argue that the Clarity Act, if enacted, would have hampered these efforts by imposing federal pre‑approval requirements that could have delayed critical enforcement steps. Furthermore, the attorneys general stress that the bill does not adequately address the cross‑border nature of many cryptocurrency scams. While the Clarity Act focuses on domestic regulatory clarity, it fails to provide mechanisms for international cooperation, which is essential when dealing with entities that operate from jurisdictions with lax oversight.
State AGs often collaborate with foreign counterparts and use mutual legal assistance treaties (MLATs) to trace and seize assets. By centralizing authority at the federal level without expanding international cooperation tools, the bill could inadvertently create gaps that bad actors could exploit.
In light of these concerns, the seventeen attorneys general are calling for the Senate to either reject the Clarity Act outright or to substantially revise its language to preserve state enforcement authority. They propose amendments that would: (1) eliminate the mandatory federal review clause, allowing states to proceed with investigations and prosecutions independently; (2) broaden the definition of securities to encompass a wider array of digital tokens that meet the Howey test criteria; (3) create a joint task force that includes both federal and state representatives to facilitate information sharing without granting veto power; and (4) incorporate explicit provisions for international cooperation to tackle cross‑border fraud. The AGs conclude their appeal by emphasizing that protecting investors and maintaining market integrity requires a collaborative regulatory approach that respects both federal oversight and state enforcement capabilities.
They warn that passing legislation that diminishes state authority could erode public confidence in the financial system and embolden fraudsters who thrive on regulatory uncertainty. As the Senate prepares to vote on the Clarity Act later this month, the bipartisan coalition stands ready to testify, provide expert testimony, and work with lawmakers to craft a more balanced framework that safeguards consumers while still encouraging responsible innovation in the digital asset space.