Coinbase, the largest crypto exchange in US, has filed a lawsuit in federal court against the Securities and Exchange Commission (SEC) requesting that the regulator publicly share its response to a petition submitted in July 2022. The crypto exchange had then filed petition asking the SEC to use its formal rulemaking process to provide guidance for the crypto industry. It has now petitioned seeking a yes or no response to its request.
The Coinbase said that the rulemaking process exists so that agencies can develop regulation with the benefit of public input, and have their position tested through judicial review. The petition has received support from over 1,700 entities and individuals who have echoed the call for regulatory clarity in the crypto industry.
Today, we filed a narrow action in the U.S. Circuit Court to compel the SEC to respond “yes or no” to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry. 1/4 https://t.co/rlsS1DIFfl
— paulgrewal.eth (@iampaulgrewal) April 25, 2023
The Chief Legal Officer of Coinbase, Paul Grewal said in a blog post, "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. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision."
"This step may feel unusual, and it is, because this step is usually not needed. But it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public."
He said that the Coinbase is not asking the Court to instruct the agency how to respond but "requesting that the Court order the SEC to respond at all, which they are legally obligated to do," he added.
This comes after the SEC in March issued a Wells Notice to Coinbase warning the company may face civil action with respect to its spot market, wallet products, Coinbase Prime and Coinbase Earn.
In January, the exchange paid a $50 million fine for allegedly failing to maintain an effective transaction monitoring system to root out ‘suspicious’ activity. The exchange had paid another $50 million to better its compliance program under the direction of the New York Department of Financial Services.
Grewal said "Coinbase does not take any litigation lightly, especially when it relates to one of our regulators. Regulatory clarity is overdue for our industry. Yet Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business."
"The rulemaking process is a critical step to giving the public notice about what activities they can and cannot engage in. 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," he added.
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