A Texas cryptocurrency company and an industry group sued the U.S. Securities and Exchange Commission on Wednesday, saying the regulator overstepped its authority and asked a judge to rule that digital assets traded on exchanges are not securities.

Fort Worth-based crypto company Lejilex and lobbying group Crypto Freedom Alliance of Texas (CFAT) claimed that the SEC asserted jurisdiction over the industry without “clear statutory authority.”

Lejilex said it seeks to operate a cryptocurrency platform called Legit.Exchange. The company, founded last year, said it plans to list digital assets, including those the SEC deemed securities in its lawsuit against Coinbase, the largest U.S. cryptocurrency exchange, and Binance, the world’s largest cryptocurrency exchange.

Lejilex wants the court to rule that listing existing tokens will not violate securities laws.

“We wish we could go about our business and not file lawsuits, but that’s what we’ve done,” Lejilex co-founder Mike Wawszczak said in a statement.

An SEC spokesman did not immediately respond to a request for comment.

Both Coinbase and Binance have denied the SEC’s allegations.

CFAT asked the court to stop the SEC from prosecuting its members, saying the agency’s jurisdictional claims over digital assets make it more difficult to convince Texas lawmakers to embrace “sensible policy.”

The group was founded last year and includes Coinbase and venture capital firm Andreessen Horowitz’s a16z crypto fund as members.

CFAT and Lejilex argue that the SEC errs in classifying digital assets as “investment contracts” because they do not create an ongoing commitment between the creator and purchaser.

They also asked the court to apply the “significant question” doctrine, which allows judges to invalidate executive agency actions of “enormous economic and political significance” unless expressly authorized by Congress.

The once-rare principle has gained traction among regulatory opponents, and the conservative-leaning U.S. Supreme Court has applied it in several recent cases.

Cryptocurrency companies opposing SEC enforcement actions, including Coinbase and Binance, have made the same argument in other cases but have so far been unsuccessful.

In July, a judge in the SEC’s case against Ripple Labs rejected the argument that an ongoing commitment is required for an asset to qualify as a security. Another judge overseeing the regulator’s lawsuit against Terraform Labs has found that the “material issues” doctrine does not apply to the cryptocurrency industry. Both cases were filed in New York.

A new lawsuit filed in federal court in Fort Worth puts the industry’s battle with regulators within the jurisdiction of the U.S. Court of Appeals for the Fifth Circuit. More than two-thirds of the appeals court judges were appointed by Republican presidents, making it the preferred venue for SEC challenges under the Biden administration.

The case is being handled by Judge Reed O’Connor, an appointee of Republican former President George W. Bush who has ruled in favor of conservative litigants challenging laws and regulations on guns, LGBTQ rights and health care.

Paul Clement, a former U.S. deputy attorney general under President George W. Bush, represents the plaintiffs.

© Thomson Reuters 2024

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