Cryptocurrency exchange Coinbase has filed a legal suit against the Securities and Exchange Commission (SEC), asking that the regulator be forced to publicly share its answer to a months-old petition on whether it would allow the crypto industry to be regulated using existing SEC frameworks.
US cryptocurrency battle hits the courts
The July 2022 petition asked that the SEC “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods,” referring to digital assets like cryptocurrencies.
The SEC did not offer a specific public response to Coinbase’s petition, but in recent months has aggressively ramped up enforcement actions and warnings against crypto exchanges, including Coinbase.
In fact there is now an ongoing ground war as legal pressure on Binance, the world’s largest crypto exchange, and others has underscored the potentially “chilling” effect of a US crackdown on crypto, legal experts say.
Binance in particular is facing scrutiny from multiple agencies, including a suit filed by the Commodity Futures Trading Commission (CFTC) against both Binance and its founder Changpeng ‘CZ’ Zhao last month.
“From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition,” Paul Grewal, chief legal officer at Coinbase said in a blog post.
“But they haven’t told the public yet. So the action Coinbase has filed simply asks the court to ask the SEC to share its decision.”
Since January, the SEC has taken action against crypto exchanges Bittrex & Gemini, crypto lender Genesis, and a number of individual actors accused of manipulating crypto assets, including crypto entrepreneur Justin Sun and disgraced Terraform Labs founder Do Kwon.
The move is Coinbase’s first formal salvo against the regulator, a little over a month after it was warned by the SEC of pending legal action through a Wells notice.
“Coinbase does not take any litigation lightly, especially when it relates to one of our regulators. Regulatory clarity is overdue for our industry,” says Grewal.
“Yet Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business,” Grewal concludes.
“It is widely recognized – including by a sitting SEC Commissioner – that existing SEC registration and disclosure requirements are incompatible with digital assets, which differ fundamentally from the stocks, bonds and investment contracts for which the securities laws were designed and that the SEC traditionally has regulated,” the Coinbase filing says.
“The SEC at a minimum must set forth how those inapt and inapposite requirements are to be adapted to digital assets. But the SEC has refused to do even that.”
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