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The Ripple lawsuit is in the spotlight again as 18 U.S. states have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC). They have accused the agency of “gross government overreach” in its regulation of the crypto industry. This suit was filed in the U.S. District Court for the Eastern District of Kentucky.
Why is Ripple Lawsuit in Focus Amid the SEC Chaos?
It argues that the SEC’s enforcement actions under Chair Gary Gensler infringe upon states’ rights to regulate their economies and have led to an “unconstitutional overreach.” Moreover, since the debacle started with the Ripple lawsuit, the XRP community reacted strongly to the development.
The XRP supporters rejoiced as this news came in, hoping for strict actions against the regulatory agency. Furthermore, with the potential departure of the wanti-crypto SEC Chairman Gary Gensler, the air has heated up like never before.
The lawsuit is led by Republican Attorneys General from Kentucky, Texas, Florida, and 15 other states. The attorneys claim that the SEC’s actions have disrupted their authority to oversee and guide the development of the digital asset industry within their jurisdictions.
🚨SCOOP: 18 U.S. states have filed to sue the @SECGov and its commissioners, accusing them of unconstitutional overreach and unfair persecution of the #crypto industry under the leadership of agency chief @GaryGensler.
The lawsuit, signed by 18 Republican Attorneys General,… pic.twitter.com/wxOovuIRQH
— Eleanor Terrett (@EleanorTerrett) November 14, 2024
As detailed in the lawsuit, they argue that the agency’s approach violates their constitutional role to “exercise their broad authority to build new regulatory frameworks to encourage the growth of this emerging sector while also protecting consumers.”
The suit highlights that blockchain technology has created a “vibrant new trillion-dollar digital asset industry,” leading to increased innovation, job creation, and expanded financial access for millions. According to the filing, the states believe they have successfully adapted their regulatory frameworks to meet the needs of the digital asset industry.
“By taking the regulatory lead in this rapidly changing area, States have fulfilled their constitutional role as ‘laboratories for experimentation to devise various solutions’ for government oversight of the digital asset industry,” the complaint states.
Other Complaints
In particular, the lawsuit points to varied state-led regulatory efforts that range from implementing financial regulations for crypto platforms to permitting digital assets for payment of taxes and fees. “While state regulatory approaches have varied in accordance with local needs, they have consistently endeavored to provide transparent and administrable rules of the road,” the filing reads.
In contrast, the states contend, the SEC has overstepped its bounds by seeking to enforce federal oversight without explicit Congressional authorization, which they claim is necessary to wield authority over the rapidly evolving crypto industry. Since Gensler took over as SEC chair, the agency has pursued an aggressive enforcement approach to cryptocurrencies. This has indeed resulted in legal challenges against numerous blockchain companies.
The agency’s “regulation by enforcement” strategy, however, has faced significant backlash from industry players, policymakers, and, as seen in this lawsuit, state governments. According to the states, the SEC’s actions amount to an attempt to “unilaterally wrest regulatory authority away from the States,” impacting the crypto sector’s ability to thrive under fair and transparent guidelines.
The plaintiffs have requested that the court issue both declaratory and injunctive relief to prevent the SEC from imposing further restrictions on the crypto industry without due legislative process. This legal challenge comes at a time of increased scrutiny of Gensler’s leadership.
Moreover, critics claim his administration has adopted an adversarial stance toward digital assets. The outcome of this case could have significant implications for both the SEC’s role in crypto regulation and the broader state-federal balance of regulatory power over digital assets in the U.S.