Supreme Court Ends Chevron Deference, Deals Blow to SEC’s ‘Crypto by Enforcement’ Strategy

A decision by the US Supreme Court last week could see a major shake up in the US regulatory landscape—which could either improve or exacerbate regulatory uncertainty for the crypto industry.

The Supreme Court ruling overturned a precedent known as the Chevron doctrine—which came about as a result of a 1984 court case: Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc. The outcome of that case allowed for federal judges to defer to the expertise of administrative agencies where gaps or ambiguity existed in the law. 

In a ruling on June 28, 2024 in the case Loper Bright Enterprises v. Raimondo, Secretary of Commerce, the Supreme Court ended the 40-year old precedent. Chief Justice John Roberts said on behalf of the conservative majority:

Perhaps most fundamentally, Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do.

Chief Justice John Roberts

How Does Removing The Chevron Doctrine Affect Crypto?

Why is ending the precedent significant? It essentially gives more power to federal judges to decide what a law means, which could undermine policy and regulators’ ability to enforce complex rules. It could also trigger a flood of litigation to challenge past rulings. 

That’s viewed as disastrous by many, given that regulatory rules designed to protect people’s rights and safety, and the environment, could face legal challenges that would be tied up in court for years.

However, from the crypto industry’s perspective, it could make regulators like the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) less eager to regulate by enforcement—as they’ve been heavily criticised for to date.

Amanda Tuminelli, chief legal officer at the DeFi Education Fund, told The Block that courts would no longer need to give deference to the SEC’s point of view when determining statutory law in crypto lawsuits. She said it could also affect the passage of current legislation like FIT21.

We are also hopeful that this ruling will lead to explicit congressional action to clarify existing statutory ambiguities, as well as a significant slowdown in regulatory enforcement actions against the industry.

Amanda Tuminelli, Chief legal officer DeFi Education Fund

Related: FIT21 Crypto Bill Passes US House with Bipartisan Support, Will President Biden Veto?

Senate candidate, crypto fan and lawyer John Deaton said the recent ruling to remove Chevron precedent was necessary because “Unelected bureaucrats literally make the law up to help push their own agenda”. 

Coinbases’s chief legal officer also saw the decision as a win and, in a post to X, used it as an opportunity to take a dig at Gary Gensler in relation to the exchange’s recent FOI lawsuit against the SEC.

Related: Coinbase Launches Legal Battle Against SEC and FDIC, Defending Crypto Industry’s Future

Republican-led Move To Overturn Chevron Widely Criticised

The decision was passed by the rightwing majority of the Supreme Court, led by Chief Justice John Roberts. Three of the five conservative justices were appointed by Donald Trump during his presidency.

Former EPA chief of staff under the Trump administration, Mandy Gunasekara, told The New York Times that “Overturning Chevron was a shared goal of the conservative movement and the Trump administration. It was expressed constantly.”

While there’s a potential upside for crypto, many have warned of dire consequences. The decision was angrily rebuked by the three left-leaning justices on the court, Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson. “A rule of judicial humility gives way to a rule of judicial hubris,” Kagan said.

In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.

Elena Kagan, Supreme Court Justice

Kagan criticised the continued, intentional attack on a fundamental aspect of the rule of law—adherence to legal precedent—which she said was a reminder to judges that “wisdom often lies in what prior judges have done. It is a brake on the urge to convert every new judge’s opinion into a new legal rule or regime.”

Harvard Law School professor Sharon Block told CNN that if a judge was hostile to a given issue, they may choose not to be informed by the agency’s interpretation, meaning “The least democratic part of the government will determine what kind of protections the American people have…” 

Block said the ruling had sent, “an engraved invitation to aggressive challenges to anything these agencies do.”

Writing for Forbes, Erik Sherman points out five key issues:

1. Courts are not experts in topics outside the law, and this decision lets politics enter from whoever is in charge. 
2. It could create inconsistencies and conflicts between different court districts in different parts of the country.
3. The time required to process the potential deluge of legal filings challenging interpretations covered by the Chevron doctrine will clog courts.
4. Planning and risk management for companies will become harder due to lack of certainty around regulation, and possibly extra delays and legal fees. 
5. Consumers will pay the price as companies pass on direct and indirect costs of increased uncertainty and upended decisions based on the precedent.