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The Industry Continues Its Offensive Against the SEC; SEC Pushes Out Attorneys from Botched Debt Box Action

The Industry Continues Its Offensive Against the SEC

Blockchain Association and the Crypto Freedom Alliance of Texas Challenge “Dealer” Rule

Last Tuesday, the Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT) filed a complaint against the Securities and Exchange Commission (SEC) challenging the agency’s ‘Dealer’ rulemaking that was finalized in February of this year. The complaint alleges that the rulemaking process violated the Administrative Procedure Act (APA) because the SEC ignored the public’s comments and feedback on the proposed rule and failed to “adequately assess [its] costs and benefits.”

Consensys Seeks Declaratory Judgement on ETH

On Thursday, Consensys filed a complaint against the SEC seeking declaratory and injunctive relief “preventing the SEC from continuing any investigation or commencing an enforcement action against Consensys based on the premise that Consensys’s transactions in ETH are securities transactions.” Consensys also alleges that the SEC’s “characterization of ETH as a security” violates the Due Process Clause of the Constitution, the APA, and exceeds its statutory authority. Consensys shared that they received a Wells notice on April 10, 2024, and therefore, they feared the SEC would attempt to bring an enforcement action against the company based on the SEC’s view that Consensys violated “the federal securities laws through its MetaMask Swaps and MetaMask Staking products'' and “by operating the MetaMask Swaps software, is an unregistered broker-dealer.”

Consensys asks the court to clarify, among other things, that ETH is not a security and Consensys’s sales of ETH are not sales of securities, declaring an investigation or enforcement action against Consensys based on ETH transactions being securities transactions would violate the Due Process Clause and APA, and Consensys does not operate as a “broker” through MetaMask Swaps and Staking. Consensys also seeks a permanent injunction preventing the SEC from taking action against it related to these claims.

What does this mean?

The story of the SEC over the last few years has been one of an agency frantically asserting authorities beyond its congressional mandate through regulation by enforcement and overbroad and ambiguous rulemakings. Chair Gensler’s SEC views APA requirements as an inconvenience such that litigation has become the only avenue through which the public’s views and arguments may be heard. These two lawsuits are strong additions to the proactive front the industry is mounting against the SEC, which includes the LEJILEX action and our lawsuit with Beba concerning airdrops and the SEC’s de facto crypto policy. 

SEC Pushes Out Attorneys from Botched Debt Box Action

What happened?

According to a scoop from Bloomberg published last Monday, two SEC attorneys trying the Debt Box case were forced to resign after Chief Judge Robert Shelby ordered sanctions against the SEC related to its “gross abuse of power” in lying to the court.

Michael Welsh, the lead attorney on the case, and Joseph Watkins, one of the investigative attorneys, were intimately involved in the series of materially false and misleading representations made to the court. According to Bloomberg, both attorneys were given an ultimatum: step down or be terminated. 

For a full overview, DEF has previously covered the Debt Box sanctions order in another Weekly post.

What does this mean?

This saga highlights the key role of the judiciary in checking the SEC’s gross abuse of power. It also stands as a warning for other agency attorneys willing to advocate for the party line without regard for the truth: neither the judiciary nor the SEC will support you when the other shoe drops.


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