State Officials Raise Concerns Over New Cryptocurrency Legislation
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State Authorities Warn About Implications of Crypto Market Bill
State regulators across the United States, from Alabama to Montana, have voiced significant concerns regarding the proposed legislation on the crypto market structure. This new bill could potentially weaken their capacity to pursue fraudulent activities related to digital assets, as reported by Bloomberg.
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Amanda Senn, the Director of the Alabama Securities Commission, highlighted that the Senate’s draft of this legislation, known as the Responsible Financial Innovation Act, fails to explicitly empower state agencies to oversee digital asset enterprises. This oversight may impede these bodies from taking action against fraudsters. Concurrently, federal enforcement actions against cryptocurrency companies have noticeably declined since the Trump administration took office.
Several federal agencies, including the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), and the Commodity Futures Trading Commission (CFTC), have either dissolved or downsized their units dedicated to digital asset enforcement. Consequently, numerous cases and investigations against crypto firms have been dismissed.
Bloomberg, citing data from Cornerstone Research, revealed that by the end of August, the SEC had initiated only nine enforcement actions related to crypto. This is a stark decrease from the 47 and 33 actions undertaken in 2023 and 2024, respectively. If this trend continues, 2025 could witness the lowest level of crypto-related enforcement actions since 2017.
Senn emphasized, “The situation could deteriorate further. Without state intervention in prosecuting fraud, there might be no oversight at all.” Montana State Auditor James Brown added that changes to the definition of an investment contract in the bill could allow criminals to escape prosecution. “Amidst all the hype around digital currencies and the promise of quick wealth, there are two factors that make fraud easy to commit,” Brown noted.
Potential Risks to State Anti-Fraud Measures
State regulators have recommended amendments to the market structure bill, which is expected to be reviewed for potential revisions post-October. Some officials argue that the current draft does not mandate crypto businesses to register with states or respond to their inquiries.
The bill also proposes modifications to the federal definition of an investment contract, introducing new conditions and elements. In response, the North American Securities Administrators Association (NASAA) sent a letter to numerous Senators in September, urging them to retain state anti-fraud enforcement powers in the forthcoming crypto legislation.
NASAA stressed the importance of maintaining state anti-fraud protections, asserting that they are vital for investor safety and crucial in combating online scams. To this end, NASAA put forth two legislative recommendations.
Firstly, they urged lawmakers to reject any redefinitions of the investment contract test, warning that altering long-standing securities law, as proposed in Section 105, could severely undermine anti-fraud efforts by complicating the regulatory process.
Secondly, they recommended the enactment of the Support Anti-Fraud Enforcement (SAFE) Act to ensure states retain the authority needed to address resident complaints involving digital assets effectively.
Despite these apprehensions, some industry stakeholders believe that the market structure bill will not necessarily obstruct state authorities from prosecuting wrongdoers. Some argue that regulators will still be able to pursue offenders under the guise of consumer protection.
Mauro Wolfe, a leading partner at Duane Morris’s Digital Assets and Blockchain Group, commented to Bloomberg, “It’s understandable why states might be concerned, especially if the federal system lacks enforcement. However, this could be a contested area where defense lawyers argue state limitations, leading to litigation.”
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