Crypto Exchange Coinbase Files Lawsuit to Force SEC to Respond to Rulemaking Petition
On Monday, April 24, 2023, cryptocurrency exchange Coinbase filed a narrow action in the United States Court of Appeals for the Third Circuit, requesting that the Securities and Exchange Commission be ordered to respond to the crypto exchange’s July 2022 petition.
The petition asked the SEC to “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.”
According to the petition, countries and markets such as Australia, Brazil, Dubai, Hong Kong, Switzerland, and the United Kingdom are actively pursuing regulation that meets the specific needs of the crypto market, ensuring investors are well-protected. The SEC, however, has not yet made any positive moves in this direction.
“Despite the well-recognized growth and rapidly developing practices in the digital asset ecosystem, and the Commission’s stated view that some digital assets are securities, the Commission has yet to constructively engage with digital asset market participants on the design of a workable regulatory framework, let alone propose any new rules governing this activity,” the petition stated.
Coinbase’s petition received no particular public response from the SEC, although the regulator has aggressively increased enforcement actions and warnings against crypto exchanges, including Coinbase.
In a blog post, Coinbase Chief Legal Officer Paul Grewal said that the Administrative Procedure Act (the APA) requires the SEC to respond to Coinbase’s rulemaking petition “within a reasonable time.”
“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. But they haven’t told the public yet,” Grewal said. “So the action Coinbase filed today simply asks the court to ask the SEC to share its decision.”
Grewal added that the SEC has been filing enforcement actions against crypto companies without disclosing how the SEC believes the law applies to their businesses.
“The rulemaking process is a critical step to giving the public notice about what activities they can and cannot engage in,” Grewal said. “So until the crypto industry gets that clarity, we will continue to take every step available to us to seek it, which includes today’s filing. We also remain available to the SEC and all of our regulators for dialogue any time on these issues.”
A copy of the original filing can be found here.
