Coinbase, the popular cryptocurrency exchange, is continuing its legal battle against the United States Securities and Exchange Commission (SEC) by requesting that a court compel the agency to initiate a long-awaited process of establishing regulations for the crypto industry.
In a brief filed on March 11 in the Third Circuit Appeals Court, Coinbase argued that the SEC violated the Administrative Procedures Act (APA) when it rejected the exchange’s petition in July 2022 to create crypto regulations without providing a sufficient explanation. Coinbase dismissed the regulator’s reasoning for refusing rulemaking, which was based on SEC Chair Gary Gensler’s belief that existing securities laws were compatible with crypto, as inadequate. Coinbase insisted that the SEC must provide a reasoned justification for its refusal to engage in rulemaking.
According to Coinbase, the SEC’s denial was arbitrary and capricious because the agency failed to clarify how securities laws apply to crypto while aggressively enforcing those laws by suing numerous crypto companies for violations. Coinbase urged the court to review its petition, reject the SEC’s denial, and compel the agency to begin the rulemaking process.
In a related post on March 11, Coinbase’s legal chief, Paul Grewal, emphasized that if the SEC claims new authority over digital assets, it must explain why through a rulemaking process and allow the public to understand and challenge its viewpoint.
Coinbase’s brief, spanning 78 pages, also accused the SEC of abruptly changing its stance on crypto. The exchange claimed that the SEC previously acknowledged limited authority over crypto due to a lack of legal clarity, but later asserted that it had sufficient authority to regulate crypto. Coinbase argued that the SEC lacked the power to change its position without congressional approval, a point that Coinbase, Kraken, Binance, and others have made in their motions to dismiss SEC lawsuits against them.
Coinbase contended that if the SEC insists on proceeding without congressional authorization, it must do so through prospective rulemaking.
It is important to note that Coinbase’s appeal against the SEC’s denial of rulemaking is a separate legal dispute from the SEC’s lawsuit against Coinbase in June 2023, which accused the exchange of operating as an unlicensed platform and offering unregistered securities. In January, Coinbase and the SEC presented oral arguments regarding Coinbase’s motion to dismiss the case, using many of the same arguments made in this appeal, namely that the SEC lacks authority over crypto exchanges unless granted by Congress.
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