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A Pre-emptive Strike or A Creative Promotion? Startup Crypto Exchange Files a Complaint Against SEC Overreach

Texas-based Lejilex crypto startup and the Crypto Freedom Alliance of Texas have sued the U.S. SEC over its "unlawful assertion of regulatory authority over digital asset transactions."

The Crypto Freedom Alliance of Texas, a lobbying group including industry names such as Coinbase and a16z Crypto, and crypto Lejilex have filed a complaint against the U.S. Securities and Exchange Commission in what they called "an attempt to stop aggressive and unorthodox enforcement actions against the industry." The plaintiffs claim that the regulator has been consistently overstepping its authority, assuming jurisdiction over the crypto industry without a "clear statutory mandate necessary to justify such a massive expansion of agency power."

Lejilex is currently building a non-custodial exchange and intends to list and trade tokens that the SEC consider securities, according to its ongoing cases against Coinbase and Binance. The lawsuit seeks judicial confirmation that secondary sales of these digital assets are not securities transactions and, thus, are not subject to the regulator’s enforcement. The company also asked that the court directly declare that its will not be an unregistered securities platform.

“These transactions do not fit the definition of "investment contracts"; if they did, the SEC’s authority would be virtually limitless, covering any purchase of an asset that might appreciate in value.”

The complaint raises topics widely discussed over the past year by the crypto community: the SEC has never been granted authority over the industry, it doesn’t respect the limits Congress has put upon its jurisdiction, and it fails to develop a proper regulation despite 'repeated pleas'.

The lawsuit largely echoes the complaints raised by Coinbase, although the focus has switched to the secondary sales of digital assets. Coinbase has been in dispute with the SEC for the past year, and has been using the courts to legally compel the regulatory agency to provide proper rulemaking, although so far these requests have fallen on deaf ears.

“We wish we were launching our business instead of filing a lawsuit, but here we are. 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.” - Mike Wawszczak, co-founder of LEJILEX.

Crypto Freedom Alliance of Texas, launched last September, is promoting the responsible development of digital asset policies in the state. It includes  Coinbase, a16z Crypto, Ledger, Paradigm, and Blockchain Capital among its nonprofit trade association members. The chair is Kinjal Shah, who is also the General Partner at Blockchain Capital.

Kinjal Shah's Forbes 30 under 30 profile. Source: Forbes

The newly launched Lejilex, which is building the "Legit Exchange" is also member of the Crypto Freedom Alliance of Texas. The exchange is expected to launch by the end of 2024 and its minimalistic landing page is currently mainly featuring the SEC case's announcement. Lejilex co-founder, Mike Wawszczak, is a self-employed attorney and a General Counsel in Alliance DAO, one of the leading Web3 accelerators and founder communities.

It is interesting to Observe the different ways crypto startups are tackling fierce competition and finding their ways through unfriendly regulations. And how some of them even creatively combine the two.