KEY POINTS
- Coinbase petitioned for the SEC to engage in new rulemaking targeted at the crypto industry
- The SEC refused the request in December, months after it filed a lawsuit against Coinbase
- Two judges raised concerns Monday about the SEC's seemingly 'vacuous' reasoning in its denial of crypto rulemaking
The U.S. Securities and Exchange Commission (SEC) has been on a years-long crackdown of cryptocurrency, and among the biggest cases followed by the digital assets community is the lawsuit against crypto exchange giant Coinbase in mid-2023.
On Monday, the warring parties appeared before the U.S. Court of Appeals for the Third Circuit, with court judges questioning the financial regulator why it denied Coinbase's request for rulemaking dedicated to the crypto industry.
The Contentious History of SEC vs Coinbase
Back in 2022, before the SEC charged Coinbase in a separate case with "unlawfully facilitating the buying and selling of crypto asset securities," Coinbase requested for rulemaking from the regulatory agency.
At the time, Coinbase urged the SEC to provide regulatory clarity so as to deliver a market structure framework that will guide crypto firms to serve the community under compliant practices.
Late last year, the SEC denied Coinbase's petition, saying it disagreed that existing securities regulations were "unworkable" for the burgeoning industry.
Coinbase has since been pushing back hard against the SEC. In June, it sued the SEC for allegedly seeking to "destroy" the entire crypto sector. It said the regulator's position of having sweeping authority over the industry "has no basis" and "has never been coherently explained by the agency."
On Monday, things heated up between the two sides as they defended their positions at a federal appeals court.
Judges Raise Doubts Over SEC's Stance
Coinbase continued to press the SEC for clear answers on why it denied the request for industry-specific rulemaking. Judge Thomas Ambro seemed to agree that the regulator's decision was questionable.
"There's an argument here that this is pretty darn close to vacuous," Ambro said, as per Law360. He went on to say that he finds it hard to understand why the SEC has been refusing Coinbase's request "even though I realized you don't have to give a whole lot." He noted that "it's a brief reasoning, but I don't see the reasoning."
Judge Ambro wasn't alone. U.S. Circuit Judge Stephanos Bibas said it appears the SEC has a lot of time on its shoulders to designate for rulemaking since it is dedicating much time to its crypto crackdown.
"So it's not that the agency isn't interested in the area, it's just interested in picking off wrongs without giving higher-level guidance. I would get it if this were the first or the second enforcement action, but we're way down the road here," he said.
According to the report, the SEC defended itself, saying it had other priorities that influenced the decision of denying Coinbase's request.
Coinbase counsel Eugene Scalia reportedly told the appeals panel that the regulator provided "zero explanation" for the December decision. Reuters added that Scalia told the judges how the Commission had been arbitrary in not providing Coinbase with clarity on registration so it can comply with the law.
In defense, SEC lawyer Ezekiel Hill reiterated that existing regulations were enough. "If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business," Hill said.
Coinbase CLO Slams 'Barebones Denial'
Coinbase Chief Legal Officer Paul Grewal said in a string of posts on X after the court clash that the SEC has refused to provide "a reasonable explanation for its barebones denial, yet it has wielded its purported authority to engage in an arbitrary enforcement campaign against our industry."
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
He went on to criticize the regulator for its enforcement-first approach to regulating the industry, saying such an approach damages American consumers, innovation, competitiveness, and even national security.
It remains to be seen how the case will move forward as the parties also navigate through a separate case wherein the SEC accuses Coinbase of offering services for unregistered securities.
