Coinbase Alleges SEC Lacks Intention to Provide Clear Crypto Rules

In its recent filing, the San Francisco-based crypto exchange claimed the US Securities and Exchange Commission (SEC) is intentionally ignoring the petition for it to adopt clear crypto industry rules.

The US-based crypto exchange’s legal team alleged that SEC had already predetermined it would refuse the request to formulate industry-specific rules. 

Coinbase Asserts SEC’s Ignorance in Rulemaking Petition

The submission made on May 22 to the Third Circuit Court of Appeals portrayed the SEC’s ignorance of the petition despite not making the decision public. 

The Wednesday filing by Coinbase’s attorney cites the public pronouncements by the SEC chair Gary Gensler affirming the ignorance displayed in the actions and words.  

The attorney confirmed submitting to the SEC petition for rulemaking in July 2022. The filing by the leading crypto exchange in the US revealed it urged the agency to propose and embrace specific regulations for digital assets securities. 

From the latest filing by Coinbase, the attorney reiterated that SEC is yet to respond to the 50 specific questions. The failure of the SEC to respond to the inquiry denied the digital assets industry clarity and certainty on the regulatory treatment of cryptocurrency securities. 

SEC’s Position Evident in Chair Submission Before Congress

Coinbase cites the recent submission by Gensler in the March Congressional hearing that regulations already exist. The attorney demonstrated that Gensler and SEC’s stance reflects in the submission to the lawmakers that regulations applying to digital assets already exist. 

The remarks confirm that SEC has already ruled out formulating other rules and will conduct oversight guided by the existing securities laws. The firm emphasized that SEC’s decision towards the rulemaking is unreviewable in the foreseeable future. 

The attorney indicated that SEC harbors no intention to reverse its stance unless the Court of Appeal intervenes by granting the mandamus petition. He explained that Coinbase would rely upon the mandamus order to enforce its July 2022 petition. 

Coinbase’s chief executive Brian Armstrong perceives the writ of mandamus in the SEC case as a legal remedy that would compel public authority or officials to execute a specific duty. The order involves a command to perform legal obligations.  

The writ of mandamus sought by the exchange will compel SEC to respond to the demands captured in a lawsuit filed in late April. The lead legal officer for Coinbase, Paul Grewal, indicated that the submission appreciates the Court’s consideration. 

Coinbase Battle Against SEC Garners Steam

SEC in its application made in early May, petitioned the Court to dismiss the action. The securities watchdog attorney submitted that mandamus involves an extraordinary remedy invoked when the petitioner had an indisputable right to the relief. 

SEC dismissed Coinbase’s plea arguing that Coinbase cannot illustrate having such a right. It added that Coinbase needs to demonstrate the statute or regulation obligating the Commission to undertake such action within a specific time.  

SEC’s plea for the Court to dismiss Coinbase’s petition portrays the agency’s resolve to enforce actions against the crypto exchange. Such is evident in the issuance of Wells notice in March claiming its staking products are unregistered securities. Ruling out Coinbase in its recent application before the Court of Appeals indicates SEC’s readiness to impose enforcement action.

SEC’s Notice of Enforcement Action Considered as Threat

The Armstrong-led crypto exchange argues that SEC threatens to enforce action as a direct rebuke to the rulemaking petition. The filing indicates that the crypto exchange laments that the wells of notice amount to threatening to sue Coinbase, alleging unspecified digital asset securities. Coinbase demonstrates that the SEC argument is based on unknown legal standards and demanding it failed to register under a non-existent registration path.

Coinbase indicates that failure to formally deny the rulemaking petition SEC prevents it from invoking the rights enshrined in the Administrative Procedure Act to challenge the agency’s decision to forego the rulemaking responsibility.

 Grewal informed the Court that the decision by the SEC to regulate the digital assets industry through enforcement was the source of all challenges rather than the solution. 

Grewal submitted that SEC’s delay in honoring the rulemaking quest is indefensible. Instead, SEC prioritizes pursuing aggressive and accelerated enforcement campaigns on the topics Coinbase identified in its petition. 

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