- The Blockchain Association filed an amicus brief to challenge the SEC’s extraterritorial jurisdiction.
- The brief argues the SEC’s reach should not extend globally due to the effects of digital asset promotions.
- A ruling in favor of the SEC could have serious consequences for blockchain innovation and international relations.
The Blockchain Association has filed an amicus brief in the SEC v. Balina case, urging the Fifth Circuit to reject the SEC’s bid to extend its jurisdiction internationally. The question is whether the SEC should have authority over digital asset projects outside the United States simply because they could reach U.S. audiences through social media platforms.
The opinion, in this case, lets the SEC reach digital asset promotions made abroad but visible to Americans. The defendant here, from Europe, promoted a digital asset project to a U.K. audience. However, the district court held that the use of globally available platforms such as YouTube, X, and Instagram constitutes domestic conduct because U.S. residents can access those platforms.
Blockchain Association Highlights Impact on Blockchain Innovation
The Blockchain Association argues that this decision would have a profound impact on blockchain innovation. In an increasingly online world, where online communications could be read by anyone around the world, allowing the SEC to reach any digital asset project for its social media outreach would make it all but impossible for developers not to be inadvertently subject to regulation by U.S. regulators.
If the SEC gets this as a way to reach and regulate digital assets, then projects would have to comply with U.S. regulations or cut all ties with the U.S. completely. This could stifle innovation, forcing many developers to reconsider their business models or even relocate outside of the U.S.
Further, the Blockchain Association argues that Congress clearly subjected the SEC’s jurisdiction to a territorial threshold within the U.S. The effort of the SEC now to expand its enforcement authority is contrary to that intent, which the Supreme Court codified in Morrison by holding that the United States laws apply only when the respective conduct has taken place within the region and not when the effects have reached American shores.
International Relations and Retaliation
The practice of extraterritorial jurisdiction by the SEC could also negatively affect international relations. The Blockchain Association says that in such a case when the court upholds the district court’s ruling, other countries might retaliate with similar legislation, which will create a patchwork of conflicting laws that will actually harm blockchain developers and international commerce.
New, competing regimes of regulation might fragment the digital asset market to an extent whereby projects will face immense challenges in conducting their operation efficiently. However, the Blockchain Association requests that the Fifth Circuit reverse the district court and return to a far more reasonable approach under the doctrine of extraterritoriality. To them, this is an important opportunity to place meaningful limits on the powers of the SEC while protecting international interests in blockchains.
