Exchange Appeals SEC’s Denial Of Rulemaking Petition

Coinbase vs SEC lawsuit has seen a renewed clash in a federal appeals court in Philadelphia, as the leading U.S. crypto exchange challenges the regulator’s refusal to establish new rules for digital assets. The hearing marks the latest chapter in the ongoing dispute between Coinbase and the SEC, with the exchange seeking to overturn the SEC’s denial of its 2022 rulemaking petition.

Coinbase vs SEC lawsuit: Denial of Rulemaking Petition

Coinbase has asked the SEC to provide a clear legal framework for digital assets stating that current securities laws are not relevant to the crypto industry.

The basis for the exchange’s appeal is the SEC’s failure to respond to a petition filed in 2022 to provide more definition on what makes a digital asset a security and to establish a market structure for digital currencies.

Today @coinbase made oral arguments before the Third Circuit in our case against @SECgov’s repeated arbitrary and capricious denial of our petition for rulemaking, which we originally put forward over 2 years ago. Here’s the original petition: https://t.co/k0n2wwaBU9 1/5

— paulgrewal.eth (@iampaulgrewal) September 23, 2024

The SEC denied Coinbase’s petition in December 2023, asserting that current regulations are sufficient and disagreeing with the idea that new rules are necessary. Consequently, the crypto exchange contends that this stance has left the crypto market in regulatory uncertainty, making compliance difficult for companies operating in the U.S.

Court Hearing Highlights Regulatory Tensions

In the Coinbase vs SEC lawsuit hearing, the crypto exchange said that the SEC’s approach of using enforcement actions instead of rule making leads to a lack of regulatory certainty. The SEC has always taken the position that digital tokens are within its jurisdiction and has categorized several tokens as securities; therefore, it has sued several crypto companies, including Coinbase, for offering unregistered securities.

Concurrently, Jake Chervinsky pointed out that there are contradictions in the language used by the SEC as its counsel has used the terms ‘digital asset securities’ and ‘crypto asset securities’ interchangeably.

This contradiction made one judge state that it seems the SEC would rather punish companies than give clear rules, which is in line with the criticism of the crypto industry regarding regulation by enforcement. He remarked,

“We won’t tell you the answer until we prosecute you.”

Coinbase CLO and Legal Observers Weigh In

Paul Grewal, the Chief Legal Officer of Coinbase, expressed his discontent with the SEC’s actions, claiming that the agency provides no guidance while simultaneously conducting an “arbitrary enforcement campaign”. The Coinbase CLO stated that Coinbase will do everything it can to get regulatory certainty for the millions of Americans who own cryptocurrencies, saying that regulation by enforcement is bad for consumers, restricts innovation and hurts the US economy.

Grewal also revealed a new hire in the crypto exchange’s legal department with Ryan VanGrack joining as the new Vice President of Litigation. VanGrack comes from Citadel Securities where he worked as General Counsel. Paul Grewal also said that he is confident in the capabilities of VanGrack in the ongoing legal matters facing Coinbase, noting that the firm is ready to continue its fight against the SEC.

I don’t know Ryan, but I do like the fact that Citadel was not afraid to sue the SEC over the CAT (Consolidated Audit Trail).
Citadel argued (stop me if you’ve heard this before) that the SEC exceeded its statutory authority in establishing CAT and its funding mechanism.

— MetaLawMan (@MetaLawMan) September 23, 2024

Legal analyst MetaLawMan in addition shared their view on the appointment of VanGrack recalling that Citadel has had a history of opposing SEC’s actions, for example, in relation to the CAT. MetaLawMan commented,

“I don’t know Ryan, but I do like the fact that Citadel was not afraid to sue the SEC over the CAT,” pointing to similarities in Citadel and Coinbase’s confrontations with the regulator over perceived overreach.”

SEC Seeks Extension in Separate Court Case Against Coinbase

Concurrent with the Coinbase vs SEC lawsuit, the agency filed a motion for an extension of time to complete discovery in the securities law violation suit against Coinbase and has suggested that the discovery period should be extended up to February 2025, after the next US presidential election.

The agency claimed that due to the discovery process that involved more than 133000 documents, the court should allow the extension.

This delay comes at the time when SEC Chair Gary Gensler is to testify before Congress and answer questions on the SEC’s approach to cryptocurrencies. The timing has raised questions on the approach of the SEC as the agency remains under pressure over its actions against the digital asset industry.

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Kelvin Munene Murithi

Kelvin is a distinguished writer with expertise in crypto and finance, holding a Bachelor’s degree in Actuarial Science. Known for his incisive analysis and insightful content, he possesses a strong command of English and excels in conducting thorough research and delivering timely cryptocurrency market updates.

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