The legal battle between Coinbase and the Securities and Exchange Commission (SEC) heated up as the crypto exchange moved to court to force the agency to begin a “long-overdue rulemaking process.”
According to a filing at the US Court of Appeals for the Third Circuit yesterday (Monday), Coinbase accused the US regulator of breaking the Administrative Procedures Act when it denied the exchange’s petition in 2022 to make crypto-specific rules. The SEC did not even provide sufficient reasoning behind its denial.
“The SEC lacks statutory authority to extend the existing securities regime to digital assets. But if the SEC insists on plowing ahead without congressional authorization, that decision must be made and implemented through prospective rulemaking,” Coinbase said.
The San Francisco-based exchange further highlighted that the regulator must “provide a reasoned justification for refusing to engage in rulemaking.” The motion even labeled the regulator’s earlier denial “arbitrary and capricious.”
If you go back and read the SEC’s perfunctory denial, you’ll be hard pressed to find an actual reason for its inaction. This is despite the dozens of legitimate concerns we raised in our petition, including questioning the SEC’s authority over the digital asset space. 2/7
— paulgrewal.eth (@iampaulgrewal) March 11, 2024
Clear Rules Are Necessary
The crypto exchange initially asked the SEC to provide guidance for the crypto industry in July 2022. The exchange sued the agency in April 2023, forcing it to either confirm or deny the decision. The SEC later denied the new rule-making, saying that the existing financial market regulations also apply to crypto.
“The [SEC] is asserting sweeping new authority over a vibrant, rapidly expanding industry—digital assets. But the SEC is pursuing this power grab through enforcement actions, and it has refused to set forth its new interpretation of its enabling statutes in a rulemaking, where the lack of legal basis for its self-aggrandizement would be laid bare,” the exchange noted.
“The SEC is seeking to effect dramatic changes to industry-wide policy that would undermine reliance interests and impose severe retroactive penalties, contrary to the requirements of the APA.”
Meanwhile, the SEC had two major legal setbacks in its action against Ripple and Greyscale, as the court sided with the crypto companies. However, the agency emerged victorious against its actions against other crypto…
