US Senator Cynthia Lummis has filed an amicus curiae brief in the case Coinbase vs Securities and Exchange Commission (SEC) in the US Court of Appeals for the Second Circuit.
Lummis is pushing back against what she describes as the SEC’s “legislation-by-enforcement” strategy under the Biden administration.
Lummis Takes Stand Against SEC’s Overreach
Senator Lummis argued that the SEC’s aggressive enforcement actions under former Chair Gary Gensler have been overreaching.
She criticized the SEC for secretly reinterpreting laws, including the Howey Test, which determines what constitutes an investment contract without transparent public input. She asserts that these changes demand compliance from digital asset exchanges without any formal legislative framework from Congress.
“The SEC’s approach under the Biden administration was to aggressively reinterpret case law governing Howey and investment contracts, keep those interpretations secret, and then demand compliance from digital asset exchanges.Such an approach is un-American. It is the job of Congress to provide a legislative framework that clearly draws the line between a security and a commodity,” said Lummis.
She insists that Congress has the constitutional authority to pass laws clarifying whether a digital asset is a security or a commodity.
Lummis further expressed concerns about the SEC’s expansion of its regulatory reach over digital assets, using a strained reading of securities laws drafted nearly a century ago. The SEC has attempted to redefine “investment contracts” in a way that could capture a broad range of digital assets—assets that do not fit the traditional definition of securities intended by Congress.
This, according to Lummis, threatens innovation in the growing digital asset industry. It also runs counter to ongoing efforts in Congress to create a thoughtful, clear regulatory framework.
Lummis’ brief highlights the issue of fundamental separation of powers raised by the SEC’s actions. In 2021, Gary Gensler himself acknowledged that Congress, not the SEC, should address the regulatory questions surrounding digital assets.
The senator’s legal challenge in Coinbase vs SEC is designed to clarify the scope of the SEC’s authority. She argues that the court should halt the SEC’s expansion of power before it stifles innovation and creates legal uncertainty.
With pending lawsuits across the country, the Second Circuit’s decision could provide much-needed clarity on the SEC’s authority.
Moreover, the latest development comes as Coinbase won a partial victory in its legal battle with the SEC. The US Court of Appeals found that the SEC had insufficiently reasoned its denial of Coinbase’s petition.
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