In Lejilex vs. SEC, Crypto Goes on Offense in the Courts

It’s no secret that the crypto industry has a chilly relationship with the U.S. Securities and Exchange Commission (SEC). It wasn’t always this way — the SEC’s views on crypto have shifted over time. In Bitcoin’s early days, the SEC’s approach to crypto was largely benign neglect. During and after the initial coin offering (ICO) bubble of 2016-17, the SEC started to take interest in the space, engaging in selective enforcement and providing the beginnings of guidance.

Jake Chervinsky is chief legal officer at Variant, where he manages the firm’s legal work and helps portfolio founders navigate regulatory strategy.

Amanda Tuminelli is chief legal officer at the DeFi Education Fund, where she leads the organization’s impact litigation and policy efforts.

In recent years, however, the SEC has taken a strong position in the anti-crypto camp. The current SEC appears to believe that the securities laws apply to the vast majority of crypto transactions and that most crypto industry participants are breaking the law. The agency has shown no signs of pursuing a path to compliance for the industry, instead prioritizing regulation by enforcement against stalwart companies like Coinbase and Kraken, among many others.

The SEC’s hostility toward crypto leaves the industry in a difficult spot. Many builders are afraid to operate in the United States due to fear of an SEC enforcement action. Even builders who spend hundreds of thousands of dollars on law firms still feel the chill of the SEC’s threat, since the high cost of defending an enforcement action can be devastating to a young company regardless of the outcome. As a result, many crypto companies are forced to act like sitting ducks, keeping their heads down and hoping the SEC looks elsewhere.

But this week the industry went on offense.

On Wednesday, a new crypto trading platform called Lejilex filed a lawsuit against the SEC in a federal court in Texas alongside its trade association, the Crypto Freedom Alliance of Texas. In the lawsuit, Lejilex argues that secondary market sales of digital assets do not constitute securities transactions and thus fall outside the scope of the SEC’s jurisdiction.

The argument is similar to one Coinbase is making against the SEC in its enforcement action in federal court in New York, and it…