A group of state attorneys general and the DeFi Education Fund sued the U.S. Securities and Exchange Commission and its five commissioners alleging the agency was overstepping its bounds in bringing enforcement actions against crypto exchanges.

The lawsuit, filed Thursday afternoon in the U.S. District Court for the Eastern District of Kentucky, asks a federal judge to block the SEC from bringing enforcement actions, arguing "the SEC's 'crypto policy' is 'unlawful executive action'" and that it violated the Administrative Procedures Act.

"The SEC’s sweeping assertion of regulatory jurisdiction is untenable. The digital assets implicated here are just that — assets, not investment contracts covered by federal securities laws," the lawsuit said.

The case comes as Gary Gensler, the SEC's Chair under President Biden, is on his way out, with once and future president Donald Trump expected to appoint a more industry-friendly successor.

The SEC's approach to crypto is encroaching upon states' rights to police the industry on their own, the suit argued.

The suit also pointed to the major questions doctrine, a Supreme Court precedent that says federal agencies shouldn't litigate issues not directly assigned to them by Congress. Other federal courts have rejected the doctrine's application to SEC lawsuits against crypto companies.

Miller Whitehouse-Levine, the chief executive officer of DEF, said in a statement that the suit was targeting SEC "overreach."

"DeFi, and crypto broadly, promises to make financial services and the digital economy more accessible, efficient, interoperable, dependable, and consumer-focused," he said. "The SEC currently stands as a barrier to realizing this promise."

An SEC spokesperson said, "We don’t comment on litigation. State securities regulators have been strong partners in efforts to uncover and prosecute misconduct in the crypto markets."

Earlier Thursday, Gensler spoke briefly about the SEC's approach to crypto, saying it followed in the footsteps of his predecessor, Trump appointee Jay Clayton.

"This is a field in which over the years there has been significant investor harm," Gensler said. "Further, aside from speculative investing and possible use for illicit activities, the vast majority of crypto assets have yet to prove out sustainable use cases."

Kentucky Attorney General Russell Coleman said the suit aimed to "keep the federal government from reaching into Kentuckians' wallets."