State securities regulators are raising concerns that their ability to prosecute cryptocurrency-related fraud could be sharply curtailed under draft legislation making its way through Congress — just as federal enforcement against digital-asset companies hits its lowest point in years.
According to a Bloomberg report, regulators from Alabama to Montana warn that the Responsible Financial Innovation Act, a Senate market-structure bill, could strip states of implicit authority to supervise crypto companies. That oversight gap, they argue, would leave investors vulnerable at a time when criminal activity in the sector is accelerating.
“The dam is going to break,” said Amanda Senn, director of the Alabama Securities Commission. “If you don’t have the states paying attention and prosecuting fraud, nobody is looking out.”
The bill also proposes changes to the longstanding definition of an “investment contract,” raising fears among regulators that crypto fraudsters could exploit new loopholes. Montana State Auditor James Brown cautioned that the revisions could “create loopholes and uncertainty where fraud could fall through the cracks.”
Federal enforcement has already slowed considerably. The US Securities and Exchange Commission (SEC) has brought only nine crypto-related enforcement actions so far this year, compared with 33 in 2024 and a high of 47 in 2023, according to Cornerstone Research. If the current pace holds, 2025 will mark the lowest enforcement activity since 2017.
Meanwhile, losses from criminal activity in the sector are mounting. In the first half of this year alone, hackers and fraudsters stole more than $2.1 billion worldwide across at least 75 separate exploits, according to data from TRM Labs — the worst six-month stretch on record.
Brown said his office in Montana has already seen crypto-related complaints more than double compared with last year. “With all the national talk about the benefits of digital currencies and the theory that you are going to get rich quick, you’ve got two factors that lead to easy fraud,” he said.
Historically, federal agencies targeted large-scale international schemes, while state authorities handled smaller, domestic frauds. Since 2017, states have taken more than 330 enforcement actions against scams ranging from “pig butchering” schemes to fraudulent investment projects, according to the North American Securities Administrators Association.
But as dedicated federal crypto crime units are disbanded, experts warn a new wave of fraud could emerge. “Stablecoins and growing blockchain interoperability are the next frontier, and together they create a storm the industry will have to weather,” said Robert Whitaker, director of law enforcement affairs at Merkle Science.
The legislation, however, remains in flux. While state regulators have pushed for revisions, the market-structure bill is not expected to move forward until at least late October, due in part to the current government shutdown.
Some legal experts believe states may retain authority under consumer protection statutes, but acknowledge that the bill’s language could invite challenges. “This will be an area where defense lawyers will say the states can’t do it, and it will be litigated,” said Mauro Wolfe, a partner at Duane Morris’s Digital Assets and Blockchain Group.
