Coinbase’s Legal Battle with the SEC: Petitioning for Crypocurrency Industry Rulemaking
In a significant development in an ongoing legal dispute between cryptocurrency exchange Coinbase and the United States Securities and Exchange Commission (SEC), Coinbase has taken its fight a step further by filing a petition in the Third Circuit Appeals Court to compel the SEC to initiate rulemaking for the cryptocurrency industry. The exchange alleges that the SEC has violated the Administrative Procedures Act (APA) by denying its request for crypto regulations without proper justification.
Coinbase’s Challenge to the SEC’s Refusal of Rulemaking
On March 11, 2023, Coinbase filed an opening brief in the Third Circuit Appeals Court. In this document, the exchange asserts that the SEC’s justification for denying its petition, which was based on Chair Gary Gensler’s belief that existing securities laws were sufficient for cryptocurrencies, is insufficient. Coinbase argues that the SEC must provide a more substantive explanation for refusing to engage in rulemaking.
The 78-page brief filed by Coinbase contends that the SEC’s denial was “arbitrary and capricious.” According to the exchange, the SEC failed to clarify how existing securities laws apply to cryptocurrencies while simultaneously enforcing those laws through lawsuits against various crypto companies. The exchange accuses the SEC of inconsistently shifting its stance on cryptocurrency regulation, alleging that the agency previously claimed limited authority over cryptocurrencies but later asserted its power to regulate the industry.
Legal Maneuvers Amidst Ongoing Litigation
It’s important to note that Coinbase’s appeal against the SEC’s refusal to engage in rulemaking is separate from the SEC’s lawsuit filed in June 2023, which accused Coinbase of operating as an unlicensed exchange and offering unregistered securities. In January 2023, both parties presented oral arguments in the SEC’s lawsuit regarding Coinbase’s motion to dismiss. Coinbase’s arguments in both instances emphasize that the SEC lacks authority over cryptocurrency exchanges without explicit approval from Congress.
Coinbase’s legal team argues that if the SEC intends to assert new authority over digital assets, it must do so through a transparent rulemaking process. This process would allow the public to understand and challenge the agency’s position. The exchange also argues that any decision by the SEC to expand its regulatory reach without congressional authorization must be made through prospective rulemaking.
Stay tuned for further updates on this legal tussle between Coinbase and the SEC. The outcome of these proceedings could significantly impact the regulatory landscape for cryptocurrencies in the United States.
