U.S. State Attorneys General Oppose Clarity Act, Cite Challenges in Combating Fraud

U.S. state attorneys general have voiced opposition to the Clarity Act, stating that weakening state-level responses could make combating fraud and other crimes more difficult.

New York Attorney General Letitia James announced on April 14 (local time) that she joined a bipartisan coalition of 17 state attorneys general opposing the Clarity Act.

The group warned that if the current bill passes as written, states may struggle to serve as the first line of defense against digital asset (virtual asset) fraud. They specifically requested maintaining state enforcement roles for tokenized securities and traditional securities, preserving federal-state cooperation frameworks, codifying state regulatory authority over digital assets, and keeping state registration systems in place while clarifying ambiguous language.

The bipartisan coalition, comprising attorneys general from Arizona, California, Connecticut, and 14 other states, sent a letter to Senator Tim Scott (Republican, Banking Committee Chair) and Senator Elizabeth Warren (Democrat).

James stated the current bill 'empowers fraudsters' and could strip state attorneys general of their authority to protect investors and assets within their jurisdictions. The coalition expressed concern that the legislation creates legal ambiguity, making it harder for states to enforce fraud laws and hold platforms accountable.

The group also raised concerns about the Securities and Exchange Commission (SEC) preempting registration regulatory authority, arguing this would grant the SEC broad discretion to unilaterally redefine federal law's scope of application beyond digital assets.

State attorneys general emphasized that state-level enforcement has been a critical tool against digital asset fraud since 2017, with over 330 anti-fraud enforcement actions taken against perpetrators. They stressed maintaining state regulatory authority is essential to protect consumers and investors.