In an ongoing legal tussle between cryptocurrency exchange Coinbase and the United States Securities and Exchange Commission (SEC), Coinbase has escalated its fight by petitioning a court to compel the SEC to initiate rulemaking for the crypto industry. The exchange has accused the SEC of violating the Administrative Procedures Act (APA) by denying its request for crypto regulations without adequate justification.
Coinbase challenges SEC’s refusal of rulemaking
Coinbase’s latest move comes from an opening brief filed in the Third Circuit Appeals Court on March 11. The exchange asserts that the SEC denied its petition, submitted in July 2022, lacked proper reasoning. According to Coinbase, the SEC’s explanation, which cited Chair Gary Gensler’s belief that existing securities laws were sufficient for crypto, was insufficient. Coinbase argues that the SEC must provide a more substantive justification for refusing to engage in rulemaking.
In its 78-page brief, Coinbase contends that the SEC’s denial was “arbitrary and capricious” as it failed to clarify how existing securities laws apply to crypto while simultaneously enforcing those laws through lawsuits against multiple crypto companies. The exchange accuses the SEC of abruptly changing its stance on crypto regulation, alleging that the agency previously claimed limited authority over crypto but later asserted its power to regulate the industry.
Coinbase insists that if the SEC intends to assert new authority over digital assets, it must do so through a transparent rulemaking process, allowing the public to understand and challenge the agency’s position. The exchange argues that any decision by the SEC to expand its regulatory reach without congressional authorization must be made through prospective rulemaking.
Legal maneuvers amidst ongoing litigation
It’s important to note that Coinbase’s appeal against the SEC’s refusal to engage in rulemaking is separate from the SEC’s lawsuit filed in June 2023, which accused Coinbase of operating as an unlicensed exchange and offering unregistered securities.
In January, Coinbase and the SEC presented oral arguments regarding the exchange’s motion to dismiss the lawsuit. Coinbase’s arguments in both instances emphasize that the SEC lacks authority over crypto exchanges without explicit approval from Congress.
