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Coinbase Challenges SEC: Demands Gary Gensler’s Emails in Crypto Regulatory Dispute

Published July 4, 2024 11:20 AM
Teuta Franjkovic
Published July 4, 2024 11:20 AM

Key Takeaways

  • Coinbase challenged the SEC’s refusal to allow discovery from Gensler’s emails, arguing that these are crucial for understanding regulatory expectations.
  • The exchange has filed lawsuits against the SEC and FDIC, accusing them of obstructing the crypto industry.
  • The crypto exchange emphasized the importance of non-public communications, citing the Ripple case.

Crypto exchange Coinbase has countered  the Securities and Exchange Commission’s (SEC) attempt to block “reasonable discovery” from Gary Gensler, the agency’s chair, in their ongoing legal battle.

Paul Grewal, Coinbase’s chief legal officer, emphasized  the importance of transparency and due process, stating that the SEC initiated this case, not Coinbase.

Coinbase Presses for Gensler’s Emails in Legal Struggle Over Crypto Regulation Insights

In a letter  to US District Judge Katherine Failla filed on Wednesday, Coinbase’s legal team argued that the information they seek from Gensler is crucial. They emphasized that Gensler’s communications about the regulatory frameworks for digital assets and exchanges while serving as Chair are vital to Coinbase’s defense of receiving fair notice.

Grewal, on the other hand, expressed  appreciation for the Court’s careful consideration of the matter.

Coinbase initially made a request  in April for the SEC to hand over documents, and followed up in June with a request for Gensler to provide documents related to communications that Coinbase believes are pertinent to their case. This includes documentation on cryptocurrency topics dating from 2017 up to now, covering the period up to four years before Gensler assumed office on April 17, 2021.

In a letter  dated June 28 to the judge, the SEC mentioned  that Coinbase had requested to search Gensler’s personal emails to find out if he communicated his opinions on federal securities laws and crypto assets using that medium. The SEC dismissed this approach.

The agency argued in the filing  that the subpoena should be addressed to the SEC, not to Gensler personally. It described the request as an improper invasion of a public official’s private life due to his public service role. The SEC also highlighted the irrelevance of the requested documents and the potential deterrent effect on public service, urging the court to quash the subpoena and issue a protective order.

Coinbase Sues SEC and FDIC, Citing Obstruction in Industry Growth

Just a few days ago,  in a move that made a significant escalation in the ongoing tensions between the cryptocurrency industry and US regulators, Coinbase has taken a legal stand. The exchange filed lawsuits against the SEC and the FDIC, accusing them of obstructing the growth of the cryptocurrency industry.

Coinbase alleges that regulators, including the SEC, FDIC, and Federal Reserve Board, have been employing various strategies to suppress the digital asset sector for nearly two years. One key tactic highlighted is the withholding of information that Coinbase requested through Freedom of Information Act (FOIA) requests.

To be more concrete, Coinbase requested information on the SEC’s perspective regarding Ethereum’s transition to proof-of-stake and details from past investigations related to cryptocurrencies. The SEC denied these requests, arguing that releasing the information could harm ongoing enforcement actions. Coinbase views these denials as obstructive and in violation of the intended purpose of the Freedom of Information Act (FOIA).

Coinbase Cites Gensler’s Emails as Key Evidence in SEC Legal Battle

The absence of definitive cryptocurrency regulations in the United States has led to ongoing conflicts between the SEC and leading web3 companies, notably Coinbase Global Inc., Binance, and Ripple Labs. Despite digital assets being a prominent topic in the upcoming US general election, the current administration has yet to implement specific crypto regulations.
Consequently, many web3 leaders have criticized the government for falling behind other major jurisdictions that have established clear frameworks for digital assets.

For example, the United Arab Emirates (UAE) has recently become more attractive to web3 companies thanks to its clear and favorable regulations on digital assets. Similarly, the European Union is rapidly advancing its Markets in Crypto-Assets (MiCA) regulatory framework, aimed at promoting sustainable adoption of web3 and digital assets.

SEC vs. Coinbase Litigation

Over the past few years, the US SEC has repeatedly accused Coinbase Global of functioning as an unregistered securities exchange, broker, and clearing agency. Although the SEC has struggled to prove in various cases that digital assets violate securities laws, the agency continues to aggressively pursue web3 companies.

Now, in a Wednesday’s filing , Coinbase told the judge that Gensler’s personal email is a valid source for discovery. They argued that what Gensler communicated privately about the regulatory status of digital assets, along with the responses from market participants, helps demonstrate the public and market participants’ understanding of what the securities laws entail.

The crypto exchange also referenced Ripple’s legal case  in their filing. They noted that, as established in the Ripple court, a document or communication does not need to be public to shed light on the public’s understanding of regulatory expectations. Communications between agency personnel and market participants, as well as interagency correspondence, are all pertinent to the fair notice defense, according to Coinbase.

Last week, Coinbase initiated two lawsuits against the SEC and the Federal Deposit Insurance Corporation, alleging non-compliance with Freedom of Information Act requests. The crypto exchange has requested a court to compel these agencies to comply with their requests.

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