The Crypto Freedom Alliance of Texas (CFAT) and digital asset company Lejilex have taken legal action against the United States Securities and Exchange Commission (SEC), requesting that the court clarify the status of digital assets sold on the secondary market.
CFAT and Lejilex filed a lawsuit against the SEC in the Northern Texas District Court in Fort Worth on February 21. Lejilex, which is planning to launch a cryptocurrency exchange called Legit.Exchange, is co-founded by Mike Wawszczak, an attorney and general counsel of Alliance DAO, according to his LinkedIn profile.
The lawsuit alleges one count against the SEC, citing the Declaratory Judgment Act and a 2007 case as a precedent. The plaintiffs are seeking several rulings from the court, including:
1. A declaration that digital assets sold on the secondary market are not investment contracts under federal securities laws.
2. A declaration that Legit.Exchange is not an unregistered securities exchange.
3. A declaration that Lejilex will not be an unregistered broker or an unregistered clearing agency by operating the exchange.
The plaintiffs argue that “the SEC’s recent enforcement actions embrace the novel position that nearly all digital asset transactions involve ‘investment contracts’ under the federal securities laws.” They further state that this position poses a threat to law-abiding participants in the digital asset industry, as they may face enforcement actions from the SEC for not complying with the SEC’s broad interpretation of its authority.
Lejilex describes Legit.Exchange as a noncustodial digital asset trading platform that utilizes smart contracts to enable users to trade with each other while maintaining anonymity. Lejilex will have control over the assets that can be traded and will perform functions like verification for a fee, but it will not hold custody of user assets. The company plans to launch Legit.Exchange by the end of the year, according to its website.
Lejilex was founded in 2023, as stated on its website. Its online presence dates back to September on the X platform (formerly Twitter). CFAT was also founded in September, and it has received support from notable backers such as a16z crypto, Coinbase, Ledger, Bain Capital Crypto, Blockchain Capital, and Paradigm.
The lawsuit extensively discusses the Howey test and references the Wahi case and the SEC’s actions against LBRY, Binance, and other entities.
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