In its efforts to clarify new rules for the crypto industry, Coinbase on Friday accused the U.S. Securities and Exchange Commission (SEC) of trying to smother an emerging industry.
In a court filing, America’s leading crypto exchange described a “Catch-22” that U.S. crypto firms are confronted with. At the same time the SEC is calling on crypto firms to come into compliance with securities laws, the agency has allegedly refused to offer “needed” rulemaking.
Combined with “scorched-earth litigation” against companies that can’t satisfy the SEC’s requests, Coinbase accused the regulator of causing crypto firms intentional harm.
“This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it,” Coinbase’s filing stated.
The crypto exchange’s rhetoric follows pushback from the SEC earlier this month. The regulator said in response to a challenge of its denial to Coinbase’s petition for rulemaking—shot down by the SEC last December—that the exchange’s legal concerns are unreasonable and unbased.
The ongoing dispute between Coinbase and the SEC over the need for new crypto rules boils down to one sentence, according to Coinbase’s Chief Legal Officer Paul Grewal. While the SEC in its denial said it “disagree[d]” that existing rules are unworkable for digital assets, Grewal claimed on Twitter (aka X) that the regulator has not offered any “reasoned decision–making.”
Coinbase’s legal fight in the U.S. Court of Appeals for the Third Circuit was launched after the SEC first sued Coinbase in the Southern District of New York. A judge let that lawsuit advance in March on most claims, denying Coinbase’s move to dismiss the lawsuit outright.
The SEC cannot claim broad jurisdiction over a new industry without proper authorization from Congress and without making clear rules. 2/4 pic.twitter.com/KlpfWKV1oq
— paulgrewal.eth (@iampaulgrewal) May 31, 2024
Last year, the regulator alleged that Coinbase failed to register as an exchange, clearing house, and broker— all while offering the services to customers—and that the exchange had offered and sold unregistered securities through its staking services. Coinbase refutes the allegations.
Trying to poke holes in Coinbase’s logic, the SEC said in a filing earlier this month that crypto firms’ widespread “difficulty complying with current statutes and regulations does not require the Commission to immediately undertake the rulemaking Coinbase seeks.”
Yet in Coinbase’s filing on Friday, the company argued exactly the opposite. The firm claimed, “The SEC is bent on choking the digital asset industry, and is tightening the squeeze by refusing to provide the necessary rules the industry has requested.”
Coinbase’s filing concludes with a request that the SEC’s previous denial be vacated and that the regulator be forced to engage in rulemaking. On the other hand, the SEC has asked that if it “failed to provide a sufficient explanation” for its denial in the eyes of the court that Coinbase’s petition for rulemaking be handed back to the SEC for further consideration.
Edited by Andrew Hayward
