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Coinbase Mandamus Aims to Force SEC Crypto Rulemaking, Agency Foot-dragging Tests Everyone’s Patience

Last Updated November 23, 2023 11:27 AM
James Morales
Last Updated November 23, 2023 11:27 AM

Key Takeaways

  • Coinbase has been petitioning the SEC to issue clear rules for the crypto sector.
  • One tactic has been to push for a legal directive known as a mandamus, which would force the agency’s hand.
  • The court ordered the SEC to update it on the status of Coinbase’s petition, but the agency has been dragging its feet.
  • Given that the mandamus option is still on the table, how long can the SEC keep stalling?

In July 2022, Coinbase filed a petition  to the Securities and Exchange Commission (SEC), hoping to nudge the agency toward issuing new rules or guidance for crypto exchanges that could form the basis of an effective registration framework. 

Since then, rather than meaningfully engaging with Coinbase’s request, the regulator opted to sue the firm for operating an unregistered securities exchange. Understandably, this frustrated Coinbase, which filed its own lawsuit  in April, hoping to force the SEC’s hand with a legal directive known as a mandamus.

What is Coinbase’s Mandamus Petition?

A writ of mandamus is a type of binding court order that can be directed toward government agencies. Coinbase’s legal team hopes the procedure could reenergize its petition for an SEC rulemaking, which has made zero progress since it was initially filed.

Discussing the strategy in a podcast, Coinbase’s Chief Legal Officer Paul Grewal observed that after receiving no response to its requests, “we felt we had no choice but to file a petition with the Third Circuit Court of Appeals requiring the SEC to give us a simple yes or no answer.”

Elaborating on the unique appeal of filing for a writ of mandamus, technology lawyer Stephen Palley said it gives Coinbase the opportunity to be a plaintiff and “craft the narrative” in its ongoing battle with the SEC.

While the court didn’t immediately grant Coinbase’s request, it didn’t reject it either. Instead, the SEC has an order to provide an update on the rulemaking petition within 120 days. 

When the anticipated update  arrived on October 10, it lacked any real substance, stating only that “staff provided a recommendation to the Commission for its consideration.” The agency promised to follow up with another report. But given its record so far, Coinbase continues to press for a court mandate.

But how long can the SEC kick the can down the road before the court loses patience?

SEC Accused Of Dragging Its Feet On Purpose

In the latest  of a series of letters submitted by the two parties, on Wednesday, November 22, Coinbase argued that the SEC’s “hedge and delay” strategy demonstrated the need for court intervention. “Only mandamus will impel the commission to fully, finally acknowledge that Coinbase’s petition for rulemaking was pocket vetoed long ago.”

Having filed a lawsuit against Kraken on Monday, November 20, the SEC is now suing 4 separate crypto firms for the alleged crime of operating an unregistered securities exchange.

Clearly, the agency is cracking down on crypto exchanges, so why didn’t it reject Coinbase’s request a long time ago? As things stand, although the crypto exchanges targeted by the SEC have argued that it has no intention of clarifying the rules, proving that in court would be difficult.

On the other hand, if the SEC rejects Coinbase’s petition, the exchanges facing SEC litigation could potentially incorporate it into their defense. 

While it isn’t clear exactly what such a legal argument would look like, Grewal did suggest  that Coinbase’s strategy draws a connection between the two fronts on which it is battling the Commission.

“It’s important that the SEC’s actions be as much on trial in this dispute as anything Coinbase has done or failed to do,” he remarked, adding that “odd procedural responses or lack of responses from the SEC are relevant and do matter to understanding what’s happening here.”

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