SEC drops appeal against ruling that blocked controversial crypto broker-dealer rule

The United States Securities and Exchange Commission has voluntarily withdrawn its appeal against a Texas federal court ruling that struck down its broker-dealer rule that sought to expand the agency’s oversight.

The commission appealed the ruling after U.S. District Judge Reed O’Connor of the Northern District of Texas found that the SEC had “exceeded its statutory authority” with the rule. 

The policy, first finalized in February 2024, wanted to classify decentralized finance platforms, liquidity providers, and automated market makers with over $50 million in capital as dealers, subjecting them to registration requirements.

O’Connor ruled that the SEC’s approach was “untethered” from U.S. securities law, siding with industry groups that challenged the regulation. 

The Blockchain Association and the Crypto Freedom Alliance of Texas argued the rule would impose unworkable compliance burdens on DeFi protocols, which lack central operators capable of enforcing Know Your Customer and Anti-Money Laundering requirements.

On Feb. 19, the SEC filed a notice with the Fifth Circuit Court of Appeals, stating it was moving “to voluntarily dismiss this appeal,” thereby bringing the legal dispute to an end.

Kristin Smith, CEO of the Blockchain Association, welcomed the SEC’s decision, describing it as a turning point for the agency following former Chair Gary Gensler’s regulatory crackdown on crypto. 

She characterized the SEC’s broker-dealer rule as an “unlawful power grab” that attempted to redefine the agency’s statutory authority without proper justification.

The SEC’s retreat on the broker-dealer rule is just the latest sign of shifting tides in Washington’s approach to crypto. With Gensler out of the picture, the agency has undergone a major course correction under new leadership.

President Donald Trump wasted no time shaking things up and refocusing the SEC away from aggressive crypto crackdowns. Acting Chair Mark Uyeda has since been steering the agency toward a more measured approach, dialing back litigation efforts that defined Gensler’s tenure.

And the broker-dealer rule isn’t the only enforcement push getting the cold shoulder—several high-profile cases against prominent crypto firms like Binance and Coinbase have now been put on pause.