New York Calls for Withdrawal of SEC Crypto Proposal as California Objects to Rule 500
Key Facts
New York Attorney General Letitia James called for the entire “Regulation Crypto Assets” proposal to be withdrawn, while California’s Department of Financial Protection and Innovation focused its objection on proposed Rule 500. The two agencies submitted separate letters to the U.S. Securities and Exchange Commission on October 20, 2026, the deadline the SEC set for public comments. New York said the proposal exceeds the SEC’s authority to grant exemptions and is inconsistent with investor protection and the public interest. California said expanding the definition of “qualified purchaser” could displace state registration and qualification requirements for certain offerings and transactions. The proposal remains at the proposed-rule stage, and the letters reflect objections submitted during the comment process; they are not court rulings or rules in effect.
James’s letter called for the entire proposal to be withdrawn, citing what it described as conflicts with investor protection and the public interest. New York said the proposal includes no market-monitoring mechanism and does not impose some safeguards traditionally associated with broker registration, including investment limits and financial-statement disclosures. The state said these safeguards are important for evaluating offerings and monitoring trading, while the proposed framework would allow covered investment contracts to trade on platforms not overseen by the SEC. The letter said these platforms could include decentralized finance protocols and foreign and U.S. centralized platforms. It added that some do not provide counterparty-identification or trading information, raising New York’s concerns about the ability to monitor the market under the proposal.
New York linked the absence of registration to fraud risks, saying a failure to register may be the first indication that fraud is present. The state cited the Coinseed case and said it received more than 200 public complaints after the non-registration action in the case. This warning draws on the state’s experience with investor complaints, not on a new court finding about the current proposal. New York also described the proposal’s structure as combining broad retail-investor access, public marketing and the ability to transfer securities immediately, while excluding traditional safeguards. The state said this combination makes registration and oversight directly relevant to protecting participants in covered offerings and trading.
In California, the Department of Financial Protection and Innovation said the proposed definition of “qualified purchaser” could displace state securities-law requirements for registering and qualifying offerings. Its objection covers offerings under the two proposed exemption pathways and certain secondary-market resale transactions. The department warned that displacement could deprive investors of safeguards against securities offerings that may be unfair, oppressive or fraudulent. It also objected to treating retail purchasers as automatically qualified, saying the definition does not specify investor characteristics that demonstrate experience or the ability to protect their interests. The department limited its letter to objections to proposed Rule 500, explaining that this scope did not indicate support for the rest of the proposal or a neutral position on it.
The proposal includes an exemption for offerings of up to $5 million over a four-year period and another exemption for offerings of up to $75 million in each 12-month period. These limits place covered offerings within federal exemption pathways for which New York and California seek to keep relevant state requirements under discussion. The Securities and Exchange Commission said the proposal also includes a conditional safe harbor; if its conditions are met, the crypto asset is treated as outside the scope of an investment contract for purposes of the securities definition. The SEC says the proposed rule follows an interpretation it issued in March 2026 on the application of federal securities laws to certain crypto assets and related transactions. The SEC issued the proposal on August 18, 2026, and published it in the Federal Register on August 21 of the same year.