By Jody Godoy

A cryptocurrency company and a group of industry professionals from Texas filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) on Wednesday. They claim that the regulator has overstepped its powers and are seeking a court ruling that digital assets traded on exchanges should not be considered securities.

The company, called Lejilex, is based in Fort Worth and is a member of the lobbying group Crypto Freedom Alliance (CFAT). The CFAT has denied the SEC’s jurisdiction over the industry, citing a “clear statutory mandate.” Lejilex plans to operate a cryptocurrency platform named Legit.Exchange and intends to list all digital assets, including those that the SEC considers securities. This puts them in direct competition with Coinbase, the largest cryptocurrency trading exchange in the U.S., and Binance, the world’s largest cryptocurrency exchange.

Lejilex argues that listing existing tokens on their platform does not violate securities laws, and both Coinbase and Binance have denied all allegations from the SEC. The CFAT has also requested the court to prevent the SEC from suing any of its members, as the agency’s assertion of jurisdiction over digital assets makes it difficult for Texas lawmakers to embrace “sensible policies.”

The Crypto Freedom Alliance, which launched last year and counts Coinbase Ventures and venture capital firm Andreessen Horowitz as members of its a16z Crypto Fund, claims that digital assets are not “investment contracts” as the SEC claims. They argue that these assets do not bind the creator or purchaser to a long-term contract.

The group has asked the court to apply the “major questions” doctrine, which allows judges to invalidate executive agency decisions that have “vast economic and political significance” and are not clearly authorized by Congress. This doctrine has been applied by the conservative U.S. Supreme Court in two recent cases, but previous attempts to use it in SEC enforcement actions have been unsuccessful.

In July, a judge rejected the argument that a continuing commitment was required to turn an asset into a security in the SEC case against Labs. In another case involving Terraform Labs, the judge overseeing the regulator’s case also rejected the use of the “major questions” doctrine. Both of these cases were brought before courts in New York.

This new lawsuit, filed in federal court in Fort Worth, brings the industry’s battle with the regulator within the jurisdiction of the 5th U.S. Circuit Court of Appeals. This court is preferred by the industry as more than two-thirds of the judges are appointed by Republican presidents, making it a more favorable venue to challenge the SEC during the Biden administration.