Crypto Trading Platform Sues SEC Over Network Token Regulation

A digital asset trading platform sued the SEC for declaratory and injunctive relief to prevent the agency from 'unlawfully expanding its jurisdiction' to cover secondary-market sales of certain network tokens sold on [the company's] platform."

In the Complaint, filed in the US District Court for the Eastern District of Texas, the company asserted that:

• the SEC unlawfully expanded its jurisdiction by categorizing secondary-market sales of specific network tokens—"a digital asset used to access or interact with a public blockchain network"—as "Crypto Asset Securities," despite these tokens not being securities under federal law.

• the SEC's regulatory overreach poses significant legal risks and compliance burdens, potentially jeopardizing the trading company's operations and the broader digital asset market.

• the SEC has adopted a "regulation by enforcement" strategy, an approach in which the agency imposes rules through litigation rather than engaging in the required formal rulemaking process, effectively circumventing statutory procedures.

The company stated further that the SEC "threat[ened] enforcement action against [the company] in regard to secondary-market sales of network tokens on its platform, even though the SEC does not have jurisdiction over those sales and cannot lawfully regulate their market absent action from Congress, a fact recognized by members of the Commission itself." The company contended that the SEC's assertions lack a sound basis in law and are inconsistent with its previous positions regarding bitcoin and ether. The company argued that the SEC's actions represent an arbitrary and capricious exercise of power that undermines the unique characteristics of the digital asset industry.

The company asked the Court to (i) declare that the targeted network tokens are not securities transactions under federal law, and (ii) issue a permanent injunction against the SEC's enforcement actions related to these transactions.