The Blockchain Association and the Crypto Freedom Alliance of Texas have filed a lawsuit against the U.S. Securities and Exchange Commission, alleging that its expanded definition of “dealer” unfairly to include ordinary digital asset trading. The suit, submitted to the District Court for the Northern District of Texas, argues that the rule’s broad scope unjustly targets individuals just trading in digital assets.

SEC Faces Increasing Crypto Pressure

The Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT) have launched a lawsuit against the U.S. Securities and Exchange Commission (SEC) in Texas, according to an official statement.

The BA and CFAT believe the SEC has exceeded its legal powers by applying a wide-ranging definition of “dealer” under the Securities Exchange Act of 1934.

On April 23, the BA announced this legal action, challenging the SEC’s recent decision to expand the “Dealer Rule,” which, according to these industry groups, is hampering innovation in the U.S. digital asset sector.

In February, the SEC introduced new regulations that expand the definitions of “dealer” and “government securities dealer.” This change means more participants in the crypto market must now register, become part of a self-regulating body, and adhere to federal securities laws.

The lawsuit requests that the court rule the regulation as “arbitrary, capricious, or otherwise not in accordance with law” under the Administrative Procedures Act, and seeks an injunction to prevent the SEC from enforcing this rule.

The suit said, “Because of the rule’s, exclusive focus on post hoc effects of trading, the new definition of ‘dealer’ will potentially sweep in all manner of digital asset markets participants, including users who merely participate in digital asset liquidity pools.”

The lawsuit points out that the definition of a dealer “explicitly excludes individuals who buy or sell securities for their own accounts,” requiring the distinction between a dealer and a trader.

SEC Wants To Unlawfully Regulate

In a statement, Blockchain Association CEO Kristin Smith criticized the rule, stating it represented another instance of the SEC’s overt efforts to regulate beyond its authority.

The statement criticized the Dealer Rule as part of the SEC’s ongoing opposition to digital assets, claiming it unlawfully expands the agency’s authorized powers and could push U.S. companies to relocate abroad while deterring American innovators.

The lawsuit also highlighted the SEC’s unclear position on which digital asset transactions are considered securities, leading to significant industry uncertainty. It noted the SEC’s inconsistent approach, either through statements or enforcement, leaves the industry unsure about which digital assets fall under the dealer rule.

The crypto market is creating pressure on the SEC as two SEC lawyers, Michael Welsh and Joseph Watkins, were forced to resign following sanctions from a federal judge who accused the agency of a “gross abuse of power” in its handling of a case against Utah-based crypto company Debt Box.

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