Big Win for Crypto: Judge Tosed Out SEC broker-dealer rule

A U.S. federal judge has invalidated the Securities and Exchange Commission’s (SEC) broker-dealer rule, which redefined “brokers” to include liquidity providers and automated market makers managing over $50 million in capital. The rule, adopted on February 6, 2024, faced criticism for imposing stringent regulatory requirements on decentralized crypto projects.

U.S. District Judge Reed O’Connor ruled against the SEC, stating, “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.”

Marisa Tashman Coppel, head of legal at the Blockchain Association, celebrated the decision, calling it a “huge win” for the burgeoning crypto industry. The rule, had it been upheld, would have required decentralized networks to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, tasks many argued were impractical for such platforms.

Even within the SEC, the rule faced internal dissent. Commissioner Mark Uyeda criticized the expanded “dealer” definition, warning, “The public should be concerned about the immense scope of this claimed jurisdiction.” Hester Peirce, nicknamed “Crypto Mom” for her crypto-friendly stance, also condemned the rule, arguing it went beyond the SEC’s regulatory authority by targeting decentralized protocols.

In April, advocacy groups including the Blockchain Association and the Crypto Freedom Alliance of Texas sued the SEC, accusing it of overreach and hindering innovation. They argued that the rule stifled the growth of decentralized finance (DeFi) and other blockchain-based projects in the U.S.

Despite the setback, the SEC can appeal the ruling to the 5th Circuit Court of Appeals. If pursued, this could reignite the legal battle over regulatory oversight of decentralized crypto networks.

Also Read: Gary Gensler Resigns from Role of SEC Chair

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