The cryptocurrency exchange had asked for a clear set of rules regarding digital assets, but the agency denied its petition in December. Coinbase doesn’t take the word “no” for an answer.
U.S. cryptocurrency trader Coinbase has filed a lawsuit with the Securities and Exchange Commission, saying that the commission is acting recklessly and arbitrarily in its refusal to modify rules to improve the oversight of the sector.
This case is a reaction to the SEC’s refusal of the company’s petition for rulemaking. This time, it is important to know what the future holds for crypto regulations before justices.
Coinbase Inc. (COIN) has complained to its U.S. Securities and Exchange Commission of not heeding laws when they rejected the firm’s formal application for crypto-related rules, according to a filing Monday in the U.S. Court of Appeals for the Third Circuit.
Lawyers representing Coinbase argue that the regulator for securities has acted capriciously and arbitrarily when it asserts authority over crypto assets and refuses to create new regulations regarding how those assets should be dealt with. The agency instead has steered its control over digital assets by enforcing its enforcement activities, the company claimed in the first brief of the lawsuit.
The SEC denied its Coinbase request at the end of December. It didn’t provide any explanation as to why it didn’t draft specific regulations for cryptocurrency, as Coinbase’s lawyers are argumentative. SEC chair Gary Gensler, who made a statement after his agency voted against the Coinbase petition, said the agency has been developing crypto-related rules – even if they aren’t the rules that the industry demands and added that “it is important to maintain commission discretion in setting its own rulemaking priorities.”
Chief Legal Officer of Coinbase, Paul Grewal, posted on Monday on the X on X that SEC must offer the public an explanation as well as an opportunity to discuss the manner in which it’s with its authority, adding, “if you go back and read the SEC’s perfunctory denial, you’ll be hard pressed to find an actual reason for its inaction.” The suit is designed to force that answer.
“The SEC demands that the industry comply with inapplicable, inapt and still-evolving securities-law requirements or else join the many companies now facing enforcement actions – including Coinbase,” the company stated in its filing. “Yet the SEC refuses to conduct the rulemaking needed to set stable standards, to show how it believes compliance with those irrelevant requirements is even possible and to deliver a path to do so.”
The latest legal action claims that the regulator isn’t doing enough to regulate crypto properly; however, it’s not directly connected to Coinbase’s infamous court battle with the SEC, which could ultimately benefit and guide the way that crypto exchanges are treated as a matter of U.S. securities law. In this case the SEC has been accusing Coinbase of running an unregistered exchange which lists non-registered crypto securities. One thing these disputes share is that the SEC has been unable to clearly define what constitutes a crypto security outside of the explanations that the agency gives when it enforces its rules.
The question hasn’t been answered by any one of the crypto-related rulemaking initiatives the SEC provides as evidence that it’s already shaping the crypto policies. The agency is developing a number of major rules that should they be able to withstand legal challenges – have significant impacts on the way that the business of the industry operates. The rules include plans to change the definition of exchanges, to allow crypto-related platforms, and to mandate that investment advisors work with qualified custodians to store their customers’ crypto and a regulation it has recently finalized to broaden its definition of dealers the manner that incorporated the decentralized financial (DeFi) activities.
Coinbase has asked that the Federal Circuit Court to throw out the SEC’s previous denial of its petition, and to direct the SEC to begin work with a new cryptocurrency rulemaking process or at the very least clearly explain the position of Coinbase.
A spokesperson from the SEC did not discuss the suit.
The SEC has spent an extensive amount of time in court over cryptocurrency issues and its history of rulings is – thus far – mixed. It has lost in a number of disputes between Ripple as well as Grayscale (leading in the approval of bitcoin spot exchange-traded funds) However, it has won in other instances, including the recent decision in a case of insider trading that was linked to an ex- Coinbase employee. In the case, a judge of the U.S. District Court for the Western District of Washington decided the crypto assets involved in that issue were securities that weren’t registered.
Although the industry monitors every court decision with a keen attention, cases – like Ripple’s are likely to proceed through appeals. Earlier decisions could be reversed if the cases progress towards examination before Supreme Court. U.S. Supreme Court.
