Paradigm supports Coinbase in battle against SEC, calls Gensler insincere

Paradigm, the VC fund led by Coinbase co-founder Fred Ehrsam, is moving to support the crypto exchange in its battle against the U.S. Securities and Exchange commission.

The firm filed an amicus brief on Wednesday in support of a lawsuit filed by Coinbase against the regulator last month that seeks to compel it to respond to a request for formal guidance for the crypto industry. The exchange used a writ of mandamus, a type of lawsuit reserved for “exceptional circumstances” in which a court can force federal officials to act.

“Chair Gensler’s refrain that crypto projects, including digital asset exchanges, should just ‘come in and register’ is an insincere admonition that is impossible to comply with,” Paradigm said in a blog post, arguing that the SEC has a legal obligation to provide the crypto industry with clear rules that are subject to judicial review. “By refusing to do so, the agency effectively paralyzes a major and growing industry.”

Coinbase first petitioned the regulator last July to propose and adopt rules that would govern the regulation of digital assets that are classified as securities. Gensler has pushed back against suggestions that there is insufficient clarity and warned crypto firms in April that they need to “comply with American laws.”

The widely watched dispute comes as a perceived hostile regulatory environment in the U.S. could push crypto firms offshore. Lawmakers in the country do seem to be getting the message, however slowly, and a joint committee hearing in the U.S. House of Representatives on Wednesday showcased growing consensus about the need for new rules.

Paradigm says SEC delay has resulted in ‘de facto ban’ 

“Paradigm, and the entrepreneurs it backs, have a strong interest in ensuring that the SEC be held to account for its delay in responding to Coinbase’s rulemaking petition,” the VC fund said in its filing, saying that the delay has left the industry in a state of uncertainty. “The SEC has not provided clear rules and guidance for digital assets and digital-asset trading platforms, and yet, it continues to seek enforcement actions against participants in the digital-assets market.”

The VC fund said that the SEC’s refusal to respond to Coinbase’s petition for rules as resulted in a “de facto ban” on digital asset trading platforms. It argued that entrepreneurs it backs have been affected by the uncertainty. 

“Paradigm has a strong interest in ensuring the SEC follows the law,” the firm said, alleging that the SEC has flouted “bedrock principles” to provide companies fair warning for over a decade. “Instead, the SEC has chosen to regulate through press releases, ‘office hour’ videos posted on Twitter, enforcement actions and thinly veiled threats.”

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