The Alternative Investment Management Association (AIMA) welcomes the US District Court for the Northern District of Texas’ decision to vacate the Securities and Exchange Commission’s (US SEC) Dealer Rule on the grounds that it exceeds the regulator’s statutory authority and is, therefore, unauthorized. On this basis, the court has vacated the final rule in full.

AIMA, along with two other trade associations, challenged the Dealer Rule in March 2024, arguing that it should be vacated entirely because it exceeds the SEC’s statutory authority, is arbitrary and capricious and was adopted without adequate consideration of its impacts on efficiency, competition and capital formation.

Commenting on the ruling, AIMA CEO Jack Inglis said:

“We are very pleased by the court’s ruling, a result that rightfully sets aside the SEC’s attempt to dramatically expand its authority by adopting a sweeping, unprecedented new interpretation of a 90-year-old statutory definition.  This outcome spares many hedge fund managers from facing the unenviable task of either attempting to comply with dealer registration in whatever form or curtailing their trading strategies that may have triggered one of the Dealer Rule’s arbitrary tests.  THE ruling validates our decision to challenge the rule to protect the interests of our members and a wide variety of market participants from what would otherwise have been severe and adverse consequences.  We also hope that today’s decision leads to the SEC rethinking its attempt to regulate by enforcement through individual cases it is pursuing that involve a literal reading of the dealer definition.”

The court’s summary of the ruling is here.

In March 2024, Gibson, Dunn & Crutcher LLP filed suit on behalf of AIMA and other industry trade bodies in the U.S. District Court for the Northern District of Texas in Fort Worth challenging the rule adopted by the US SEC that dramatically expands the definitions of “dealer” and “government securities dealer” (the “Dealer Rule”).

The consortium of trade bodies argued that the rule should be vacated based on their arguments that, among other things:

• The US SEC lacks the statutory authority to adopt the definition in the Dealer Rule because the rule captures firms that are not, and have never been considered, dealers and lacks any limiting principle.
• The US SEC engaged in arbitrary and capricious decision-making, including by failing to adequately address the economic consequences of the Dealer Rule.
• The Dealer Rule is otherwise contrary to law because it imposes a burden on competition not necessary or appropriate in furtherance of the purposes of the Securities Exchange Act.

The panel of judges presiding over the case has ruled in favour of AIMA and other industry trade bodies, agreeing in principle with the arguments outlined above.

Source: AIMA

Blockchain Association and CFAT prevail against SEC – Dealer Rule Struck Down

The United States District Court of the Northern District of Texas ruled the SEC’s dealer rule must be struck down, stating the SEC exceeded its statutory authority.

“The court ruling is a victory not just for Blockchain Association and the Crypto Freedom Alliance of Texas – but for the entire digital asset industry. The Dealer Rule was an attempt by the SEC to advance the agency’s anti-crypto crusade, unlawfully redefining the boundaries of its statutory authority granted by Congress. Following the ruling, the agency’s overreach is rolled back and the digital asset industry is protected from this unlawful rule,” said Blockchain Association CEO Kristin Smith.

“Litigation isn’t always the preferred path, but in some cases it’s critical to defending the industry against overzealous regulators, and at those moments we have a responsibility to challenge such actions. The SEC clearly exceeded its authority by adopting a definition of ‘dealer’ that is, in the Court’s words, ‘untethered from the text, history, and structure of the Exchange Act,’” said Blockchain Association Head of Legal Marisa Coppel.

Blockchain Association and the Crypto Freedom Alliance of Texas first brought this challenge against the SEC in April of this year, arguing the SEC’s misguided attacks against the industry amounted to arbitrary and capricious rulemaking.

Source: Blockchain Association