What You Need to Know: In a comment letter to the U.S. Securities and Exchange Commission, California argued that a new proposal would undermine state oversight of fraudulent investment opportunities, harming investors and consumers.
November 3, 2026 - SACRAMENTO – California’s Department of Financial Protection and Innovation (DFPI) on Monday 
opposed a new Trump administration proposal which would eliminate critical state regulatory tools used to police fraudulent investment opportunities. In a comment letter to the U.S. Securities and Exchange Commission, California argued that the proposed rule, which purports to focus on promoting investments in cryptocurrency, would in reality harm investors and enable corruption by undermining states’ ability to oversee risky deals and enforce the law.
In the new letter, California outlines how this backdoor effort to undermine state law enforcement could be extended to other types of business opportunities, threatening wide-ranging consequences. The action comes as federal regulators continue efforts to weaken oversight and undermine state protections.
“As federal regulators roll back their own oversight of corrupt investment practices, they are also attempting to squash states’ power to police fraudulent deals and crack down on corruption. Today’s submission to the SEC is one of California’s many efforts to safeguard state protections from federal efforts that seek to squelch them,” said California Business and Consumer Services Secretary Rohit Chopra. “The SEC’s gambit to muzzle state oversight will have real consequences. California will continue its work to protect investors and consumers and ensure markets are not subject to manipulation and deceit.”
“California firmly opposes the federal government’s persistent efforts to circumvent state law and weaken investor protections. Although this proposal focuses on digital assets, it could just as easily strip state protections from other investment products, which could harm California investors and consumers alike,” said Department of Financial Protection and Innovation Commissioner KC Mohseni. “California champions innovation and the entrepreneurs who drive it. What we will not accept is a coordinated attempt by federal regulators to override state authority and protections while stepping back from the oversight they are supposed to provide.”
As the world’s fourth-largest economy, California has long played a vital role in reviewing securities offerings to stop unfair, abusive, and potentially fraudulent practices. The SEC’s proposed rule, entitled “Regulation Crypto Assets,” attempts to circumvent state law, undermining California’s authority to review digital asset offerings before they enter the market and threatening to eliminate the State’s ability to identify and screen out high‑risk or volatile digital asset securities.
Securities investments involving crypto assets remain one of the riskiest types of investments — yet, the federal proposal undermines investor protections as it reduces the State’s oversight, putting consumers and their hard-earned money at risk. The FBI’s Internet Crime Complaint Center reported a record $11.3 billion in losses to crypto scams in 2025. DFPI added nearly 200 new crypto-related scams to its nationally recognized Crypto Scam Tracker — a 30 percent increase from the previous year.
While federal regulators have abandoned enforcement over corrupt investment practices, California has continued to chart a different path by taking strong action to protect investors. For example, California recently ordered Fire Suppression Innovations Inc. to stop selling illegal stock, return $2.9 million, and face $785,500 in fines after the company lied about a fake $5 billion buyout, hid personal spending, and used a Ponzi-like scheme that used new investor money to pay old investors.
California will continue to examine other longstanding laws to determine how they can be used to ensure markets are not subject to manipulation and deceit.
About DFPI
The Department of Financial Protection and Innovation protects consumers, regulates financial services, and fosters responsible innovation. DFPI protects consumers by establishing and enforcing financial regulations that promote transparency and accountability. We empower Californians to access a fair and equitable financial marketplace through education and by preventing potential risks, fraud, and abuse.
Source: DFPI
