U.S. SEC Loses Crypto Lawsuit Over 'Dealer' Definition That Pushed Into Crypto

• The U.S. District Court for the Northern District of Texas has ordered the Securities and Exchange Commission to throw out its so-called "dealer" rule, finalized in February.
• Crypto industry groups had sued the agency, arguing its rule marked an inappropriate stretch into the sector.
• The ruling emerged just as SEC Chair Gary Gensler was announcing his resignation and touted the agency's legal wins against the crypto industry.

A Texas federal court has rejected the U.S. Securities and Exchange Commission's recent rule expanding the definition of a securities dealer to include a wider swath of firms — including some in the cryptocurrency sector. This adds a significant legal loss to the crypto legacy of SEC Chair Gary Gensler on the same day he announced his January departure.

In response to a lawsuit from the industry lobbying group Blockchain Association and the Crypto Freedom Alliance of Texas, a judge in the U.S. District Court for the Northern District of Texas granted an early decision Thursday that slammed the SEC for overextending its legal reach. The court ordered that the rule be thrown out.

"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 the ruling from Judge Reed O’Connor.

The judge, who previously handled a Consensys suit against the SEC, issued an order that no part of the final rule approved in February can stand.

An SEC spokesman told CoinDesk, "We’re reviewing the decision and will determine next steps as appropriate."

The agency's rule was among several it's worked on during the tenure of Chair Gensler that explicitly sought to reinforce that the SEC's authority extended to crypto businesses. The dealer definition was expanded in such a way that it included crypto operations, and the industry argued it was dangerously vague and would have made impossible demands on decentralized finance (DeFi) and also captured crypto traders who didn't offer any dealer services.

Read More: Crypto Lobbyists Sue SEC Over 'Dealer' Definition

Blockchain Association and the Texas group quickly sued, and this rapid response from the court marks a significant legal win against an agency whose chairman has been touting its legal victories against crypto in recent speeches.

Gensler's departure press release on Thursday referenced the agency's clashes with crypto, noting, "Court after court agreed with the Commission’s actions to protect investors and rejected all arguments that the SEC cannot enforce the law when securities are being offered — whatever their form."

The Blockchain Association CEO Kristin Smith called Thursday's ruling a victory for the entire industry.

"The dealer rule was an attempt by the SEC to advance the agency’s anti-crypto crusade, unlawfully redefining the boundaries of its statutory authority granted by Congress," she said in a statement. "Following today’s ruling, the agency’s overreach is rolled back and the digital asset industry is protected from this unlawful rule."