Coinbase Challenges SEC in Court Over Rulemaking Petition Denial

On May 31, Coinbase filed a closing brief with the US Court of Appeals for the Third Circuit, contesting the SEC’s rejection of its rulemaking petition.

The dispute centers on a brief statement in the SEC’s order that simply “disagreed” with Coinbase’s claim that current SEC rules are impractical for digital asset firms.

Coinbase contends that this lack of thorough reasoning warrants the annulment of the SEC’s order. Additionally, Coinbase is asking the court to compel the SEC to engage in rulemaking for the crypto industry.

Paul Grewal, Coinbase’s Chief Legal Officer, underscored the significance of this legal fight on social media, criticizing the SEC for not providing substantial justification for its disagreement. He stated:

“The SEC’s order must be vacated on this elementary ground alone.”

Grewal pointed out that the SEC is overstepping its authority without clear congressional mandate and without establishing clear regulations for the digital asset sector.

SEC’s Refusal to Establish Rules

Grewal accused the SEC of trying to suffocate the digital asset industry by refusing to create necessary regulations. He commented:

“The SEC is bent on choking the digital asset industry and is refusing to provide the necessary rules the industry has requested in order to tighten the squeeze.”

This viewpoint is reflected in Coinbase’s legal brief, which argues that the SEC’s actions are a calculated effort to dismantle the industry by enforcing unworkable regulations.

Coinbase asserts that the SEC’s failure to engage in proper rulemaking violates the Administrative Procedure Act (APA), which mandates agencies to conduct rulemaking for significant policy changes.

The brief argues that the SEC’s policies on digital assets have been inconsistent and lack a clear legal framework, making compliance impossible. It states:

“The SEC’s position has radically and continually changed, creating uncertainty and confusion.”

The filing also notes the SEC’s contradictory statements over the years and its aggressive enforcement actions targeting a select group of digital assets without clear guidance.

An Untenable Situation

Coinbase’s legal team argued that the SEC must create clear and workable standards for digital asset firms through rulemaking.

The brief asserts that the SEC’s current approach renders the entire digital asset industry non-compliant with existing rules, which is “untenable and unfair.”

The case has garnered significant attention from the crypto community and regulatory observers due to its potential to impact digital asset regulation in the US.

Coinbase’s challenge highlights the ongoing tension between the digital asset industry and regulatory bodies as the industry seeks clarity and fair treatment under the law.

The Third Circuit’s decision will be closely watched, as it could shape the future of digital asset regulation and define the SEC’s authority over the industry.