Coinbase Says The SEC Is Breaking The Law By Refusing To Make Crypto Rules

On Mar 12, 2024

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Coinbase is accusing the US Securities and Exchange Commission (SEC) of breaking the law by refusing to engage in rulemaking for the crypto industry.

In an opening brief filed at the Third Circuit Appeals Court on March 11, Coinbase accuses the SEC of acting arbitrarily and capriciously by denying the exchange’s July 2022 petition that asked the regulator to formulate clear crypto guidelines.

The SEC’s denial of Coinbase’s petition is also ”an abuse of discretion” and in violation of the Administrative Procedure Act, its brief said.

“The SEC violated the APA by refusing to engage in rulemaking and by failing to provide a reasoned explanation for its denial of Coinbase’s rulemaking petition,” it said. ”This Court should order the SEC to begin a long-overdue rulemaking.”

Today @coinbase filed our opening brief in the Third Circuit challenging the SEC’s denial of our rulemaking petition. Tl;dr: the SEC’s denial is arbitrary and capricious, an abuse of discretion, and a violation of the Administrative Procedures Act. 1/7 https://t.co/v09uE2OHsb
— paulgrewal.eth (@iampaulgrewal) March 11, 2024

Securities Laws Are Inapplicable For Crypto Assets

In December last year, the SEC Chair, Gary Gensler, said the existing securities laws could be used for cryptocurrencies.

But Coinbase said that these laws were “inapplicable, inapt, and still-evolving,” and could not govern crypto assets.

“Force-fitting digital assets into existing registration requirements presents insurmountable hurdles not only for issuers but also for digital asset platforms,” Coinbase said.

SEC Made Conflicting Statements

Coinbase is also accusing the SEC of flip-flopping on its stance on regulating cryptocurrencies.

In 2018, the securities regulator affirmed that crypto assets were not securities. Three years later, it classified cryptocurrencies as an investment contract.

In 2021, the SEC admitted to the lack of a market regulator for cryptocurrencies. In 2022, it changed its tune to claim Congress bestowed upon it the mandate to regulate exchanges.

Don’t want to read our entire 78-page brief in our Third Circuit suit against the SEC? Just read this to understand how broken the Commission’s approach has been. pic.twitter.com/jBlEr9DKOZ
— paulgrewal.eth (@iampaulgrewal) March 11, 2024

“The SEC’s reversal and its inability to articulate its novel position has left a cloud over the industry for years,” Coinbase said.

Its petition comes as the biggest US crypto exchange faces a lawsuit filed by the SEC accusing it of offering unregistered securities and operating as an unregistered platform.

Similar lawsuits have been filed against other leading exchanges, including Binance and Kraken.