SEC vs. Coinbase: Hearing, Filings, Court Dates and Details in Full
- Coinbase is accused of operating as an unregistered securities exchange, a claim the exchange refutes by classifying traded cryptocurrencies as digital commodities, not securities.
- Coinbase has requested access to SEC Chair Gensler’s emails to defend against SEC accusations.
- The exchange claims that the SEC obstructs the legal process by refusing to provide relevant documents.
In a tense standoff, the Securities and Exchange Commission (SEC) is pushing back against Coinbase’s demands for internal documents, labeling them “irrelevant” and “excessively broad” as the cryptocurrency exchange fights accusations of operating an unregistered securities exchange.
In its latest salvo, Coinbase filed a new notice that could reveal the SEC’s stance on an array of cryptocurrencies it has labeled as securities in recent years.
Coinbase Requests SEC Documents
Coinbase has escalated its legal dispute with the Securities and Exchange Commission (SEC) by seeking court intervention to obtain documents related to the agency’s internal cryptocurrency discussions.
These documents could shed light on the SEC’s stance on Ethereum and similar tokens, potentially having significant implications for the future of the U.S. digital asset industry.
Coinbase initially requested the documents through the Freedom of Information Act but was denied due to an ongoing investigation.
The company has now filed a notice with the U.S. District Court for the District of Columbia, seeking partial summary judgment and arguing that the SEC’s reasons for withholding the documents may no longer be valid.
The SEC’s response to Coinbase’s latest legal move remains to be seen. However, the ongoing battle between the two parties underscores the critical importance of regulatory clarity in cryptocurrency.
SEC, Coinbase Clash Over Document Requests Amid Law Dispute
The SEC argued that the documents Coinbase seeks are “entirely irrelevant,” with the company not providing any prior legal cases or principles to justify its extensive demands. According to the agency, these requests are based on a tenuous connection to Coinbase’s operations or the application of securities laws to digital assets.
In response, Coinbase’s Chief Legal Officer, Paul Grewal, criticized the SEC on social media platform X, stating that the regulator owes transparency to both the targets of its regulatory actions and the public, especially when engaging in what he terms an “unprecedented regulation by enforcement campaign.”
Previously, Coinbase had also sought to subpoena SEC Chair Gary Gensler’s personal emails for discovery purposes, a request that U.S. District Judge Katherine Polk Failla denied.
This legal battle stems from last year’s lawsuit filed by the SEC against Coinbase, accusing the platform of functioning as an unregistered securities exchange. The crux of this ongoing dispute is the SEC’s view that many cryptocurrencies traded on Coinbase qualify as securities under their regulations, an assertion Coinbase contests by arguing that these are digital commodities, not securities.
Gensler Emails: Key to Coinbase’s Defense in Crypto Case?
Initially, Coinbase had sought Gensler’s emails before and during his tenure. However, following resistance from the SEC and Judge Katherine Polk Failla, Coinbase has since narrowed its request.
According to motion:
“That extends to Chair Gensler’s SEC emails, and even to asking Chair Gensler whether he used his ‘personal email for communications’ about his public statements on these subjects that he said were made in his personal capacity.”
The motion emphasizes Subpoena Request No. 23, which pertains to documents related to Gensler’s speeches on digital asset regulation. According to Paul Grewal, Coinbase’s chief legal officer, these documents are directly relevant to the SEC’s current claims.
The motion also notes that the SEC has refused to search for documents outside its Enforcement Division’s investigative files, citing issues of relevance and undue burden. Additionally, the SEC has declined to conduct custodian email searches or implement a produce-or-log protocol for such searches.
Coinbase argues that the SEC’s public statements and meetings with industry stakeholders, including Coinbase, contradict the current lawsuit’s claims. To support its defense, Coinbase is seeking access to internal SEC documents and communications, accusing the agency of obstruction for not providing this critical information.
Years before the SEC sued Coinbase, the agency’s commissioners and staff interacted with crypto market stakeholders, including Coinbase, and provided public statements and guidance on crypto regulation, as noted in Coinbase’s motion filed on Wednesday.
Coinbase Trims SEC Chair Gary Gensler Subpoena Following Judge’s Concerns
Amidst its ongoing tussle with the Securities and Exchange Commission (SEC), Coinbase lawyers sought to subpoena Gary Gensler , aiming to obtain important information from the chair’s personal communications that they believed could be relevant to the case.
After the Judge stood behind the SEC in this case, Coinbase decided to change the narrative.
Coinbase has decided to narrow its subpoena directed at SEC Chair Gary Gensler, focusing solely on his communications and actions during his tenure at the SEC.
Coinbase Seeks Gensler’s Communications in Court
Recently, crypto exchange Coinbase was said to be actively challenging an attempt by the Securities and Exchange Commission (SEC) to limit access to information from Gary Gensler, the agency’s chair, as part of an ongoing legal dispute. The exchange argues that such discovery is essential for their case.
Paul Grewal, Coinbase’s Chief Legal Officer, then stressed the importance of transparency and due process. He highlighted that it was the SEC, not Coinbase, that initiated the legal proceedings, underscoring the necessity for fair discovery processes.
In their legal battle over insights into cryptocurrency regulation, Coinbase has made a formal request to U.S. District Judge Katherine Failla.
In a letter filed on Wednesday, June 3, Coinbase’s legal team insisted that communications from Gensler regarding the regulatory frameworks for digital assets and exchanges during his tenure are crucial for their defense. They argue that these communications are central to establishing whether Coinbase had fair notice of the regulatory expectations.
Grewal expressed gratitude for the court’s meticulous consideration of the issue, reflecting Coinbase’s reliance on the judicial system to uphold principles of fairness and transparency in this legal confrontation.
Coinbase Intensifies Legal Battle with SEC and FDIC, Citing Regulatory Obstacles and Lack of Transparency
Coinbase initially requested documents from the SEC in April and sought communications from Chair Gary Gensler in June, focusing on cryptocurrency regulation since 2017—four years prior to Gensler’s tenure which began on April 17, 2021.
The SEC, in a June 28 letter, rejected the request to search Gensler’s personal emails, arguing it was an invasion of privacy and urging the court to dismiss the subpoena for being irrelevant and potentially detrimental to public service.
In a broader legal conflict, Coinbase recently sued the SEC and FDIC, accusing them of stifling industry growth by withholding information requested under the Freedom of Information Act (FOIA), including details on Ethereum’s shift to proof-of-stake and past cryptocurrency investigations.
This legal standoff reflects ongoing tensions between U.S. regulators and major web3 entities like Coinbase, which assert that the lack of clear cryptocurrency regulations in the U.S. has put the country behind other jurisdictions with clearer digital asset frameworks, such as the UAE and the E.U.
The SEC has consistently challenged Coinbase’s operations, alleging it acts as an unregistered securities exchange. Meanwhile, Coinbase maintains that understanding private communications about digital asset regulation is essential for their defense, referencing the Ripple case to argue that even non-public communications can clarify regulatory expectations.
Coinbase’s Grewal Challenges SEC’s Crypto Securities Stance
The legal battle between the United States Securities and Exchange Commission (SEC) and Coinbase intensified in June last year. Just one day after the agency sued Binance, the SEC filed civil charges against the cryptocurrency exchange.
The complaint accused Coinbase of being an unregistered national securities exchange, broker, and clearing agency.
Coinbase Chief Legal Officer Paul Grewal recently spoke out , claiming SEC Chair Gary Gensler had “misrepresented” crypto tokens.
Gensler previously stated that many of those tokens are securities under the law of the land, as interpreted by the U.S. Supreme Court. We follow that law.”
On Monday, May 6, Gensler highlighted the impact of scams and fraud within cryptocurrency. He said that while crypto comprised a small segment of the overall financial market, it disproportionately contributed to illegal activities. This, he suggested, was because of failure to comply with securities laws.
Gensler said the crypto industry needed to make proper disclosures, especially for tokens that are classified as securities. He added that investors did not receive the necessary disclosures to make informed decisions.
Meanwhile, Paul Grewal criticized the SEC’s issuing of a Wells notice to Robinhood Markets regarding its cryptocurrency operations.
The spat comes in the wake of reports that the SEC is investigating whether or not Ethereum (ETH) is a security.
SEC Lawsuit Against Coinbase Proceeds, But Wallet Claim Dismissed
Meanwhile, in a brief filed on March 11, Coinbase’s legal team criticized the SEC. It said the agency failed to set up clear cryptocurrency regulations. It accused the SEC of engaging in “power grab” enforcement instead of setting clear guidelines.
As the largest crypto exchange in the US, Coinbase actively lobbied the SEC to shape crypto regulation.
Between 2022 and 2023, the company held over 30 meetings with the SEC to discuss potential regulations. Despite this, the negotiations did not yield the desired results.
A few days after the brief filing, Judge Katherine Polk Failla ruled the SEC could proceed with its lawsuit against the Nasdaq-listed Coinbase. However, she dismissed one of the SEC’s claims concerning the Coinbase Wallet.
According to the court document, the Coinbase Wallet, which assists users in discovering and comparing prices on decentralized exchanges, does not constitute “routing or making investment recommendations.” This decision narrows the scope of the SEC’s lawsuit while also allowing the main case to move forward.
Ripple, Coinbase Legal Chiefs Challenge Yellen on Crypto Regulation Gaps
In February, the legal chiefs of Ripple and Coinbase raised concerns with Treasury Secretary Janet Yellen about the oversight, or lack of it, in cryptocurrency. Under Yellen’s guidance, the Financial Stability Oversight Council (FSOC) has repeatedly pointed out deficiencies in the crypto regulatory framework.
Paul Grewal said recent statements from Yellen and Senator Cynthia Lummis have countered the argument that cryptocurrency regulation can proceed without Congressional involvement.
Grewal highlighted the formation of a “contemporaneous, more bipartisan record” on the issue, signaling a growing consensus that Congress needs to legislate on crypto regulation.
Judge Grills SEC and Coinbase Over Crypto Security Definition
In January, Judge Polk Failla questioned both Coinbase and the SEC about their conflicting positions on whether certain cryptocurrencies were securities.
During the proceedings, Judge Failla concentrated her inquiries on the legal precedents that define securities and the characteristics of various crypto tokens traded on Coinbase and other platforms. The SEC has claimed these are investment contracts.
Coinbase has asked the court to dismiss the SEC’s lawsuit.
The company’s attorney, William Savitt, argued that the cryptocurrencies available on Coinbase should not be classified as securities. This is because they do not confer the same rights to purchasers as stocks or bonds do. Savitt compared it to the difference between holding shares in a company that sells Beanie Babies and purchasing the toys themselves.
SEC Maintains Status Quo on Crypto Rules, Coinbase Appeals Decision
On December 15, 2023, the SEC rejected Coinbase’s petition , initially filed on July 21, 2022, which sought new rules for digitally traded securities and clarification on which digital assets are considered securities. The SEC argued existing laws and regulations were adequate. It also said that adapting them to the crypto market would unduly restrict the Commission’s regulatory flexibility. This decision was decided by a 3–2 vote.
Afterward, Gensler said the denial was based on the belief that current laws suffice for crypto securities markets.
Following the SEC’s refusal, Coinbase appealed to the Third Circuit Court of Appeals. It asked for a mandate requiring the SEC to address its rulemaking petition. However, the appeal was dismissed on December 18, 2023, just days after the SEC’s decision. Coinbase then filed another petition for review in the Third Circuit. It went on to challenge the SEC’s decision as arbitrary and in violation of the Administrative Procedure Act.
Coinbase Accuses SEC of Deliberate Delay Tactics in Regulatory Battle
In a November letter to the U.S. Court of Appeals for the Third Circuit, Coinbase argued that the SEC was persistently delaying the process in the crypto exchange’s ongoing effort to secure new regulations.
Coinbase lawyer Eugene Scalia wrote a letter. He said that “only an order by this Court will make the Commission act.”
He said:
“Although the agency’s fear of a court ruling spurred it to do something, its proffer of another ‘report’ — as it continues to hedge and delay — confirms that only mandamus will impel the Commission to fully, finally acknowledge that Coinbase’s petition for rulemaking was pocket-vetoed long ago.”
Coinbase also argued that the SEC’s lawsuit against the Kraken exchange showed that the regulator had already decided that new rules were unnecessary. Scalia pointed out the lawsuit was filed just a day before the SEC claimed it needed more time to deliberate. Scalia argued that the regulator’s path was set and urged the court to dismiss this latest maneuver as insignificant.
Coinbase Awaits Judge’s Decision in Landmark SEC Case
In October, Coinbase prepared to make its final argument in a bid to dismiss the SEC’s charges. The company aimed to convince Judge Failla, saying the transactions in question did not meet the definition of investment contracts. It argued no actual contracts existed and also accused the SEC of overstepping under the major questions doctrine. This limits federal agencies from regulating emerging areas without clear congressional guidance.
As the deadline for Coinbase’s filing approached, the outcome awaited Judge Failla’s decision. The judge had, indeed, shown some skepticism towards the SEC’s broader interpretation of investment contracts.
According to SEC lawyers:
“To distract from the fatal flaws in its legal arguments, Coinbase cries foul and seeks to blame the SEC for its current legal predicament.”
But Coinbase has argued – and some judges seemed to agree – that tokens were not, inherently, securities themselves. The exchange argues that the cryptos have to be attached to an investment contract to be defined as securities.
Coinbase’s Chief Legal Officer Unfazed Amid SEC Legal Battles
In March last year, the SEC issued a Wells Notice to Coinbase, hinting at potential legal action. This led Coinbase to sue the agency, demanding clearer regulations for the crypto industry. By June, the SEC had sued Coinbase for allegedly operating without proper registrations.
The company disputed these allegations. Nevertheless, Grewal , a former federal judge, expressed optimism at Messari’s Mainnet conference in September. He said that Coinbase’s lawsuit could significantly influence the industry’s regulatory landscape. He emphasized the importance of the court’s recognition of the SEC’s jurisdiction as a critical issue.
Grewal remarked that the lawsuit symbolizes broader regulatory challenges facing the crypto industry.
New Lawyer for Coinbase
The Coinbase v. United States Securities Exchange Commission lawsuit has received support from the crypto community, digital asset associations, and policymakers. In recent developments, a new lawyer, Patrick V. Kennedy, joined the fight. He is requesting permission from the court to act as amicus counsel on behalf of the Chamber of Digital Commerce.
Patrick V. Kennedy of McDermott Will & Emery filed a request to be admitted pro hac vice, which means “for this occasion,” with the intention of acting as counsel for amicus the Digital Commerce Chamber on August 31.
The Chamber of Digital Commerce has contributed significantly as an amicus curiae in the ongoing Coinbase v. SEC litigation together with the Blockchain Association. An ‘amicus’ is a party or a person who joins the case but is not actively involved in it, only giving advice to the court.
Through enforcement proceedings, the Chamber of Digital Commerce seeks to halt the SEC’s attempts to regulate the digital asset market, contrary to congressional goals. The SEC’s actions provide unclear guidelines instead of specific cryptocurrency rules sanctioned by Congress. Notably, Congress has never granted explicit permission for the SEC to regulate digital assets.
Coinbase executives Brian Armstrong and Paul Grewal remain optimistic that the case will be dismissed. Grewal contends that SEC Chair Gary Gensler is impeding cryptocurrency development in the U.S., while legislators have called for the complaint’s dismissal.
Coinbase Requests Litigation Dismissal
In recent developments, Coinbase filed an “Answer to Plaintiff’s Complaint ” with the U.S. District Court for the Southern District of New York. They claim that when the SEC approved Coinbase’s public offering in May 2021, they were fully informed about all operations, including staking and listing. Coinbase is now requesting the dismissal of the SEC’s allegations due to lack of merit.
In a 177-page document, Coinbase refutes the SEC’s allegations that 12 listed crypto tokens on their platform are securities. Notably, six of these tokens were already being traded on Coinbase when the SEC approved their IPO. Since the SEC had not classified any crypto assets as securities at that time, Coinbase argues that the legal claims should be dismissed.
Coinbase has expressed readiness to engage with regulatory bodies, including the SEC, to chart the way forward. This mirrors its request for arbitration with California users, which the Supreme Court approved.
The exchange also maintained that the SEC lacks jurisdiction to regulate the burgeoning cryptocurrency industry due to the absence of relevant laws passed by Congress.
Coinbase also contended that, as a global and evolving market, the cryptocurrency industry necessitates new legislation from Congress. Failure to do so risks ceding technological leadership to nations like Europe, China, and Singapore, which have already established clear cryptocurrency regulations.
Coinbase Addresses SEC’s Response to June 6 Order
Grewal tweeted: “We couldn’t wait until our deadline next week to address the SEC’s response to the June 6 order from the Third Circuit.”
“It is unusual for the government to reject a straightforward query from a federal court.”
The corporation was reportedly asking for “mandamus,” which is a court order given to a government organization by a higher court for the company to carry out a particular action or obligation that they are legally required to undertake.
Coinbase was asking a federal judge to order the SEC to establish clearer laws and standards for the digital assets business. The cryptocurrency exchange made the same request to the court in a petition filed last year.
For Coinbase Cryptos Are Different From Securities
The crypto industry has long stressed the need for regulatory clarity in the U.S., with Coinbase under SEC scrutiny regarding unregistered securities. Coinbase contends that cryptocurrencies, being fundamentally distinct from traditional securities, should not be classified as such.
They claim they operate on decentralized networks, use cryptographic technology, and have multifaceted functions beyond securities. In the latest development, Coinbase has been accused of operating illegally without first registering with the regulator, and the SEC filed a lawsuit against it on Tuesday, June 6.
SEC Lays New Charges Against Coinbase
The lawsuit came only one day after the SEC sued Binance, the world’s largest cryptocurrency exchange, and its founder, Changpeng Zhao.
Both actions are a part of SEC Chair Gary Gensler’s initiative to give investors who trade virtual currencies, additional protection.
“Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection,” Gensler wrote in a tweet .
In a complaint filed in Manhattan federal court, the SEC alleged that Coinbase had generated billions of dollars since 2019 through Bitcoin transactions without complying with disclosure rules meant to protect investors.
The complaint scrutinized various aspects of Coinbase’s operations, including Coinbase Prime for order management, Coinbase Wallet for liquidity access, and the Coinbase Earn staking program.
In the staking program, Coinbase pools cryptocurrency assets and uses them to expedite blockchain network activity, providing clients with “rewards” after taking a portion for itself. The SEC claimed that Coinbase was fully aware of its obligations under federal securities laws but chose to ignore them.
Gurbir Grewal, the head of SEC enforcement, said in a statement : “You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones.
SEC Vs. Coinbase – All you need to know
In the latest development, the SEC responded to Coinbase’s petition for a writ of mandamus on May 15, asking the court to require the SEC to respond with a simple ‘yes’ or ‘no’ regarding whether it will undertake rulemaking for the crypto industry.
With this latest response from the SEC, Coinbase expresses anticipation for the upcoming opportunity to provide a formal reply and filed a formal mandamus on May 22. The company acknowledges and values the Court’s diligent and thoughtful consideration of the matter at hand.
On May 15, SEC took the initiative to file a court order in an attempt to dismiss Coinbase’s request for a response to its rules petition . However, it also acknowledged its ongoing reliance on enforcement actions as a substitute for rulemaking in the foreseeable future.
The absence of clear guidelines hinders productive activities, stifles innovation, and undermines the broader economic and strategic interests of the United States. Even the Chamber of Commerce expressed its concern that the Securities and Exchange Commission’s (SEC) lack of clarity has resulted in economic damage not only to Coinbase but also to the wider business community.
To resolve this issue, Coinbase, a month ago, urged the Third Circuit Court of Appeals to compel the SEC to provide “regulatory clarity” concerning the application of existing securities laws to the rapidly evolving digital asset industry.
Allegedly, the exchange’s filing seems to be a proactive measure to argue that the SEC’s current approach fails to offer adequate regulatory guidance for U.S. companies operating in the crypto sector.
What is Coinbase Doing about the SEC?
Aside from taking court action, Coinbase has taken action against the U.S. Securities and Exchange Commission (SEC) by launching #Crypto435 , a campaign in which more than 25,000 Americans from all 435 Congressional Districts have signed up to be crypto advocates. Coinbase provides two additional ways to involve people.
Also, in a more focused move, Coinbase has initiated legal action by filing a petition in federal court with a specific objective: to compel the Securities and Exchange Commission (SEC) to provide a straightforward response, either a “yes” or “no,” to Coinbase’s pending rulemaking petition.
The petition urges the SEC to offer long-awaited guidance for the cryptocurrency industry. It emphasizes the need for clarity and regulatory direction.
Lastly, during an interview with CNBC’s Dan Murphy in Dubai, Coinbase CEO Brian Armstrong expressed his observation regarding Securities and Exchange Commission (SEC) Chair Gary Gensler’s stance on cryptocurrencies. “There’s kind of a lone crusade, if you will, with Gary Gensler, the chair there, and he has taken a more anti-crypto view for some reason,” Armstrong said.
What Do Lawyers Say?
According to Murphy, if the Securities and Exchange Commission (SEC) proceeds with its threat to sue Coinbase, it is likely to lose the legal battle . “If the SEC follows through on its threat to sue Coinbase, I believe the SEC will lose. The SEC’s case has a fatal flaw. And the problem is entirely of Gary Gensler’s own making.”
Another attorney representing Ripple commented that the SEC’s motives look driven by a political agenda rather than a legal case.
Gary Gensler, the SEC Chair, plays a significant role in this context, and his approach could be considered a fatal flaw in the entire case . However, the SEC said that Chair Gensler’s public statements are not formal guidance or policy statements from the SEC. And the public cannot rely on them as such.
Lastly, Brad Garlinghouse, CEO of Ripple Labs, has even mentioned a potential “Crypto Exodus” from the U.S. due to the SEC’s actions and regulatory uncertainties.
With additional reporting from Giuseppe Fabio Ciccomascolo.
