Advocates Urge Congress to Protect State Regulators’ Ability to Fight Fraud

The conflict over proposed federal digital asset legislation continues, with investor protection groups warning Congress that parts of the Responsible Financial Innovation Act of 2025, or RFIA, would significantly undermine state regulators’ ability to fight fraud.

The Public Investors Advocate Bar Association, or PIABA, an international group of attorneys representing investors, sent a letter to Senate leaders urging them to oppose provisions in the RFIA that PIABA claims would weaken vital investor protections.

The letter was formally shared with Congress by the North American Securities Administrators Association, or NASAA, the association representing state securities regulators, which emphasized its support for preserving state rights in the securities markets.

Last month, a bipartisan group of 28 academic leaders in securities and financial regulation – including representatives from Stanford University, George Washington University Law School, and Notre Dame Law School – issued a letter to Congress calling for the removal of provisions within the RFIA that would weaken vital investor protections and hinder regulators’ ability to combat fraud, particularly digital and/or crypto fraud. The letter was organized and endorsed by NASAA, which represents state and provincial securities regulators across the United States, Canada and Mexico.

In the latest letter, PIABA’s strongest objection Section 105 of the RFIA, which proposes redefining the investment contract test, a key principle used by both federal and state regulators to identify and prosecute investment fraud, particularly in new asset classes like digital offerings.

Adam Gana, president of PIABA, argued in the letter that the proposed change would be “good for bad actors and harmful to investors.” Specifically, the group warns that the new definition could be exploited by “fraudsters pushing pig butchering and Ponzi schemes, promissory note frauds, real estate swindles, and fraudulent oil and gas offerings.”

The organization highlighted a particularly damaging consequence: the proposed law could create a new requirement that investors lose more than a minimum amount of money for a violation to exist. PIABA believes this change would sideline regulators, making it significantly harder for them to respond quickly to evolving, time-sensitive frauds; and harm investors, forcing courts to address urgent cases without the benefit of decades of established case law.

Beyond the investment contract test, PIABA and NASAA emphasized two areas where state authority must be maintained.

• State licensing and registration: The groups stress that state laws establishing professional conduct and knowledge standards for securities firms and professionals act as critical “gatekeeping functions.” Weakening these laws would make it easier for “unscrupulous individuals” to enter the marketplace, reducing public trust and removing essential background information for investors.
• State anti-fraud enforcement authority: State securities regulators, described as being on the “frontlines of protecting retail investors for over a century,” have dedicated significant resources to tackle the online scam epidemic. PIABA’s letter urges Congress to explicitly preserve state anti-fraud enforcement authority as it exists today to ensure states can continue to respond effectively to residents’ fraud complaints without legal ambiguity.

In its closing remarks, PIABA urged Congress to abandon efforts to redefine investment contracts, maintain the critical guardrails provided by state licensing, and protect existing state anti-fraud authority, stating: “Investors deserve no less.”

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