- Crypto firms have lodged preemptive suits against the SEC.
- The stakes? The survival of the industry.
- The endgame is to get a crypto case all the way to the Supreme Court, observers say.
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Crypto firms are playing offence in the legal battle against the Securities and Exchange Commission.
At stake: the very survival of their businesses.
They’re doing so by filing cases in Texas and Louisiana.
Their endgame is to get their cases all the way to the Supreme Court, observers say.
Crypto.com sued the US regulator last week. MetaMask developer Consensys; apparel company Beba and the DeFi Education Fund; and artists Brian Frye and Jonathan Mann have all brought their own suits in recent months.
These suits are preemptive strikes against the agency, which had the industry on the back foot as it filed lawsuit after lawsuit against crypto firms.
These industry suits were filed in the US South, in contrast to the SEC, which chooses to file its cases in New York or Washington, DC.
So what?
Well, Texas and Louisiana fall under the Fifth Circuit of Appeals.
Of the US’s 13 appeals circuits, the Fifth Circuit has always been among the most conservative. But it veered hard right after Republican Donald Trump appointed six judges to the court during his presidency.
The court has upheld restrictions on abortion, expanded gun rights — and is known as the go-to court if you want to resist the Biden administration and the power of regulators.
Every industry in the US is trying to get its appeals heard in the Fifth Circuit, academic Todd Phillips told DL News. Crypto is no different.
“Everyone paying attention knows that the industry is forum-shopping” — choosing to file cases in sympathetic courts, Phillips, who is an assistant professor of law at Georgia State University, said.
That’s not to say every company on this list is forum-shopping. One could argue, for instance, that Frye and Mann filed in Louisiana because that’s where Frye lives.
Nevertheless, their cases will be heard in the conservative-leaning Fifth Circuit, if they get that far.
That’s not the industry’s endgame, however.
Phillips said the industry hopes to manufacture a “circuit split” — a situation where two appeals courts make contradictory decisions — over whether crypto assets are securities.
When a circuit split occurs, the Supreme Court is more likely to hear a case. Then, it can decide the issue once and for all.
The SEC might reasonably hope for an appeals court win in New York or the District of Columbia, as judges there have shown early sympathy for the agency’s arguments.
The industry regards the SEC v. Ripple Labs decision as a key court win. In that case, New York federal Judge Analisa Torres ruled that crypto transactions were not securities when they happened on exchanges.
Ripple Labs is going to the Second Circuit of Appeals, which is fairly likely to overturn Torres’ ruling, Phillips said.
So to create that circuit split, the industry needs a Ripple-style win in another, more sympathetic appeals court. And it’s most likely to get that in Texas.
Update: This story has been updated to clarify the legal case as it relates to Beba and the DeFi Education Fund.
Reach out to me at joanna@dlnews.com.