The release number is SEC Release No. 33-11434. The DFPI’s objection, signed by Commissioner KC Mohseni, was submitted on 20 October 2026.

At its core, the dispute is about the boundary between federal and state securities law. Under existing US securities law, certain exempt offerings must still clear state-level “blue sky” review, a process California uses to screen offerings for fraud risk before they are marketed to residents. The SEC’s proposed rule, in the DFPI’s reading, would create a federal preemption pathway for crypto asset offerings, removing that state review stage.

The DFPI argues that the practical consequence would be a meaningful reduction in the number of fraudulent offerings intercepted before harm occurs. Commissioner Mohseni said California would not accept “a coordinated attempt by federal regulators to override state authority and protections while stepping back from the oversight they are supposed to provide.” California Business and Consumer Services Secretary Rohit Chopra characterised the SEC move as an attempt to “muzzle state oversight” at the same time as federal enforcement of investment fraud rules is being curtailed.

The DFPI also raised a wider concern: it said the same preemption logic, once established for digital assets, could be extended to other investment categories, weakening state protections beyond the crypto sector.

The scale of the problem the DFPI is trying to police is not trivial. 3 billion from crypto-related scams in 2025. California’s own Crypto Scam Tracker added nearly 200 new entries in the period, a year-on-year increase of approximately 30 per cent.

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