Coinbase Condemns SEC’s Bureaucracy, Demands Regulator’s Decision on Crypto Rules

The world’s second-largest crypto exchange, Coinbase, denounced the bureaucracy portrayed by the US Securities and Exchange Commission (SEC) regarding crypto-specific rules. Coinbase has petitioned the Gary Gensler-led SEC for over twelve months to issue formal guidance on whether digital assets qualify as securities. 

Coinbase Attorney Downplays Explanation Offered by SEC

Coinbase downplayed the response offered by SEC, terming it as tactically delaying conveying its stance to the long-delayed petition. The San Francisco-headquartered crypto exchange reiterated its demand for the securities agency to act on its overlooked request submitted in 2022 promptly. 

Coinbase sought the SEC to issue formal rules on the digital assets classified as securities.  The Brian Armstrong-led crypto exchange submits that failure by the SEC to take action would necessitate the court’s intervention to force the agency to issue formal crypto-specific rules.

Coinbase, in a Friday, October 13 filing to the Manhattan federal court, alleged SEC displayed troubling intransigence signs to deny action on the rulemaking petition filed in July 2022. The filing after the SEC called for a delay granted by the court in June this year. The recent filing by the agency counsel confirmed SEC’s reached a recommendation, though yet to issue guidance. 

SEC Accused of Harbouring No Intention to Honor Coinbase Request

Coinbase’s counsel, Eugene Scalia, submitted that the SEC’s approach illustrated a tacit admission of harbouring no intention to act on the crypto exchange’s request. The counsel submitted that nonaction from the SEC plunges the digital asset into a Catch-22 situation.

Scalia indicated that the agency’s unilluminating report portrays bureaucratic pantomime and illustrates only assertive court action directing the SEC to take obligations seriously. The counsel, identified as a partner at Gibson Dunn and son to the distinguished Supreme Court Justice Antonin Scalia, advocated for a mandamus to the agency. Mandamus involves a judicial writ issued by a higher court to a lower one, directing it to perform the statutory duty.

The initial Coinbase request featured a petition for rulemaking demanding that the SEC outline how the crypto exchanges could stay within the federal securities laws. Twelve months later, the SEC would open a lawsuit alleging Coinbase ran crypto-related services without complying with the registration requirements for securities exchange. The June 6 lawsuit led the 3rd Circuit Court of Appeals to ask the agency to indicate whether it decided to deny the petition sought by Coinbase. 

SEC’s Chair Labels Crypto Firms as Non-compliant 

In his role as SEC’s chairperson, Gensler restated that the existing laws already capture sufficient coverage on digital assets. The chair downplayed the call for crypto-specific regulations and accused the digital asset firms of apparently refusing to comply with the rules. 

In its Wednesday, October 11 filing, the SEC emphasized that its staff issued recommended action on the Coinbase request. Scalia tore to the recommendation, indicating the response was inadequate and deliberate. 

Scalia outlined that the agency should not conceal its de facto denial that it was dodging the likely judicial review of the failure to offer formal crypto-specific guidelines. The counsel demanded the securities watchdog was only issuing opaque allusions to uncertain advice issued internally by the staff.

Scalia pointed out the evidence that the SEC refused honoring the petition with its Corporate Finance Division directing Coinbase’s chief executive to eliminate disclosure, indicating no certainty of realizing digital assets as the law is well-established. The move contrasts the December 2020 letter to Armstrong requesting the addition of the provision. 

Scalia submitted that if the agency admits to possessing the rulemaking petition recommendation, it is timely for the court to compel the SEC to make such suggestions public in a month. 

Scalia emphasized that the SEC resolved not to honour the rulemaking request in the past. Now that the agency’s staff has acted, it makes it easier to implement the sought action.