Coinbase Vs SEC Court Case: Exchange Wants Commission to Start Rulemaking Process
Coinbase CEO Brian Armstrong has been critical of the SEC's approach to crypto. .Jason Armond / Los Angeles Times via Getty Images.
Key Takeaways
- Coinbase has responded after the SEC denied its rulemaking petition.
- The exchange wants the regulator to establish a new framework for crypto.
- However, the SEC claims existing regulations are sufficient.
After the United States Securities and Exchange Commission (SEC) accused Coinbase of selling unregistered securities last year, the crypto exchange fired back. Now, Coinbase has made a legal challenge that aims to force the regulator to write new rules for the sector.
In an opening brief for the case, filed on Monday, March 11, Coinbase lawyers lambasted the SEC’s failure to deliver clear crypto rules, accusing the agency of using “power grab” enforcement actions in place of regulations.
Coinbase Leads Calls for SEC Crypto Rulemaking
As the largest American crypto exchange, Coinbase has long been at the forefront of the industry’s efforts to lobby the SEC.
Between 2022 and 2023, the company met with the agency more than 30 times. At those meetings, it discussed potential crypto regulations, spending millions of dollars on legal fees in the process. But in the end, those negotiations failed.
Coinbase’s campaign culminated in a formal petition “requesting that the Commission propose and adopt rules” for cryptocurrencies. In December, however, the SEC denied the petition, arguing that existing securities regulations are sufficient.
Objecting to the denial, the SEC’s latest court filing accuses the regulator of placing digital asset companies in an impossible Catch-22.
SEC’s Gensler Accused of 180 Degree Pivot on Crypto
Observing that “for years the SEC indicated that it had little statutory authority over digital assets,” Coinbase’s brief blames Chairman Gary Gensler for instigating what it called an “extraordinary about-face” on the legal status of cryptocurrencies. It says:
“After its Chair unilaterally decreed his belief that most digital assets are securities, the agency swiftly pivoted by attempting to regulate them—not by rulemaking, but through enforcement, in a scorched-earth, nationwide campaign against an entire industry.”
Getting to the meat of the issue, Coinbase alleges, “the SEC told digital asset firms to “come in and register” under threat of enforcement suits. However, “registration is neither required nor possible under existing rules”.
Coinbase Has Broad Industry Backing
Alongside Coinbase’s petition, the SEC has received at least five similar requests from other companies. Meanwhile, numerous exchanges have made their objections to the current model known.
During a hearing in the case of SEC vs. Binance in January, Binance’s lawyer Matthew Gregory echoed Coinbase’s claim. He said the agency failed to set up clear regulations for the cryptocurrency sector.
He accused the SEC of “telling the industry [to] come in and register, while simultaneously with their other hand holding the door closed and preventing any viable path to do that”.
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