Crypto exchange Coinbase has taken legal action against the US Securities and Exchange Commission’s (SEC) denial of clear and transparent regulations for cryptocurrencies.
This comes in the form of refiling of a lawsuit that was first introduced last year when Coinbase had filed a petition for the SEC to create a new regulatory framework for digital assets.
As the SEC dragged its feet in giving out a timely response, the exchange approached the court in April 2023. The top regulator took eight more months to give out its opinion, which has now resulted in a denial of Coinbase’s rule-making request.
In a letter to Coinbase dated 15 December 2023, the regulator stated: “The Commission disagrees with the petition’s assertion that application of existing securities statutes and regulations to crypto asset securities, issuers of those securities, and intermediaries in the trading, settlement, and custody of those securities is unworkable.”
According to it, a sufficient framework already exists for the industry. The Commission also commented on the timing and priorities of its regulatory agenda saying that it has the discretion to determine the same, including with respect to discretionary rulemaking such as what was requested in Coinbase’s petition.
Challenging the decision
Coinbase’s intention to challenge the regulator’s latest decision was revealed on the same day by its chief legal officer, Paul Grewal, in a post made on X (formerly Twitter).
Grewal brought in arguments from the Congressional testimony of 2021 where he claimed that the SEC Chair had declared that that there are no regulatory authorities applicable to the cryptocurrency exchanges.
He also talked about the US Commodity Futures Trading Commission (CFTC)’s latest view on the same which clashes with the SEC. Last week, CFTC Chair, Rostin Behnam, stated that under existing law, many of the tokens constitute as commodities.
Grewal added: “No one looking fairly at our industry thinks the law is clear or that there isn’t more work to do.”
In Coinbase’s petition of review, the exchange has held that the US watchdog’s denial of its rulemaking petition is arbitrary and capricious, which is an abuse of discretion and in violation of the Administrative Procedure Act (APA). It further stated:
“Coinbase respectfully requests that the Court hold unlawful, vacate, enjoin, and set aside the Order; direct the Commission to commence rulemaking; and provide such additional relief as may be appropriate.”
SEC Chair’s support to denial
The SEC’s decision was accompanied by a statement from its Chair, Gary Gensler, who supported the denial of the rulemaking petition. He laid out three reasons for taking this stance:
“First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”
According to him, the existing securities regime appropriately governs crypto asset securities. The current registration and disclosure regime accommodates a variety of issuers and securities. Here, Gensler stated that the offerings of crypto asset securities have already been registered or qualified under those existing securities laws.
SEC’s lawsuit against Coinbase
At the core of the dispute is the matter of determining whether certain cryptocurrencies should be considered securities or not. While Coinbase believes that SEC does not provide sufficiently clear rules, the regulatory body hit the exchange with a lawsuit in June 2023.
Here, the SEC accused the platform of operating as an unregistered securities exchange. The regulator listed 13 tokens as examples which could be considered as securities, including $SOL and $ADA.
In October, US state authorities came forward in support of the SEC in a campaign spearheaded by federal securities regulators, the US state authorities and legal experts. They argued that Coinbase operated an unregistered securities exchange and asserted the regulator’s power over cryptocurrencies.
