Crypto Wins as US SEC Loses ‘Dealer’ Lawsuit

Judge Reed O'Connor ruled that no U.S. law supports the SEC's broad use of the term “dealer” to classify crypto companies under securities regulations.

Crypto litigants in the state of Texas have dealt the Securities and Exchange Commission (SEC) of the United States yet another significant setback. Judge Reed O'Connor of the United States District Court for the Northern District of Texas issued a fresh ruling, ruling that no US legislation supports the regulator's use of the term “dealer” in relation to securities.

US SEC Overreach Stemmed Again

Two industry organizations, the Blockchain Association and Crypto Freedom for Alliance of Texas, brought forward a lawsuit, the outcome of which will determine Judge O'Connor's decision.

The pair posed a challenge to the widespread application of the word “dealer,” which is now a fundamental component in the battle against securities fraud. When it came to including crypto companies in the definition of a securities dealer, the judge agreed with the plaintiffs, who had reservations about the inclusion.

The plaintiffs, as previously mentioned, believe that the extensive use of the term hinders the overall market expansion. The argument that they presented was that this is particularly true for the ecosystem of decentralized finance (DeFi).

As Judge O'Connor has been known to ignore the market regulator,”The court concludes that 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,” according to Judge O'Connor's verdict.

Many of the market regulator's policies remain contentious. The United States Securities and Exchange Commission (SEC) enacted this securities dealer requirement under Rule 3a5-4. A person who “engages in a regular pattern of buying and selling securities that provides liquidity to other market participants” is considered a dealer, according to this rule.

A dealer is the person who typically “expresses trading interest at or near the best available prices on both sides of the market.” This statement holds true most of the time. This category also includes individuals who profit from the use of bid-ask spreads. Because of this expansive definition, cryptography is extremely vulnerable to increased regulation.

The market regulator began this legal battle nearly simultaneously with Gary Gensler's announcement of his long-awaited retirement as Chair of the United States Securities and Exchange Commission.

The verdict in the “dealer” lawsuit acts as a vote of no confidence in the department, which is known for being a regulator that starts with enforcement. Supporters of cryptocurrency remain concerned about his successor despite his scheduled resignation on the 20th of January.

Many names remain unconsidered as potential candidates. Despite Chris Giancarlo, the former chairman of the commodity futures trading commission, dismissing the possibility, sources indicate that Paul Atkins is a leading candidate to watch closely. The United States Securities and Exchange Commission (SEC) desperately needs changes. Industry experts believe the president's option will contribute to achieving this goal.