Texas Crypto Firm Lejilex Sues SEC Following Overstretched Securities Classification

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Texas-based cryptocurrency firm Lejilex has filed a lawsuit against the Securities and Exchange Commission (SEC) over securities labels on cryptocurrency assets.

The lawsuit filed on Feb 21 in a federal court in Fort Worth challenges the SEC’s jurisdiction in several actions affecting its business last year.

So this is huge. Today, @LEJILEX and the Crypto Freedom Alliance of Texas (CFAT) sued the SEC seeking a declaration that “secondary-market sales of digital assets like the ones that LEJILEX intends to facilitate through the https://t.co/FrN5OiTwYN are not sales of securities.”…

— Amanda Tuminelli (@amandatums) February 21, 2024

Last year, the company sought to create a cryptocurrency exchange and offer trading services around assets flagged by the SEC. The exchange was to list digital assets which had been classified as securities by the regulator.

The financial regulator increased pressure on the market in 2023, citing investor protection concerns in an attempt to rid the sector of bad actors.

As cryptocurrency fraud and scams surged, the SEC increased pressure by declaring some assets as securities, effectively putting them under its jurisdiction.

According to the regulator, this was done to impose the same level of scrutiny and criteria on those assets to avoid possible investor losses.

As a result, the SEC filed charges against Binance and Coinbase for offering trading services to unregulated securities.

Crypto Freedom Alliance of Texas Stands With Lejilex

Lejilax, alongside the Crypto Freedom Alliance of Texas (CFAT), filed a lawsuit against the SEC, claiming an extension of the regulator’s powers. The CFAT, a group that advocates for fair and responsible crypto policies, comprises big industry players like Coinbase and a16z crypto fund.

Both parties argue that the SEC lacks a clear mandate to oversee crypto regulations and states that listing pre-existing tokens does not breach securities laws.

“The SEC not only lacks the legal authority to regulate most digital asset transactions but has proven it is unprepared to respect the limits Congress has put on its jurisdiction or even to develop and enforce common sense and consistent regulations for this emerging industry, relying instead on regulation via ad hoc enforcement actions.” 

Mike Wawszczak, a Lejilex co-founder, encapsulated the slowdown of the company’s business due to the Commision’s regulation.

“We wish we were launching our business instead of filing a lawsuit but here we are,” he wrote. 

No Investment Contract Between Parties

For Legilex, the classification of crypto assets as investment contracts is a stretch because there is no long-term commitment between sellers and the purchasers to manage a common venture for the purchaser’s benefit.

“The SEC’s rogue enforcement actions targeting our industry have paralyzed those of us who just want to build lawful businesses and technologies. Fear of rogue enforcement should not be a thing entrepreneurs are forced to experience. We hope our action encourages the SEC to reconsider its regulatory approach…” 

Last year, Coinbase made several efforts to seek regulatory clarity in the United States, urging the SEC to change its approach. Several executives also highlighted migration concerns as a result of harsh policies taken by regulators in the country.

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