Crypto exchange Coinbase has continued its legal fight against the United States Securities and Exchange Commission, asking a court to force the agency to “begin a long-overdue” process to make rules for the crypto industry.
In a March 11 opening brief in the Third Circuit Appeals Court, Coinbase claimed the SEC broke the Administrative Procedures Act (APA) — governing how agencies can make regulations — when it denied the exchange’s July 2022 petition asking the SEC to make crypto rules and didn’t give a sufficient reason as to why.
Coinbase said the regulator’s reason for the rulemaking refusal — where SEC Chair Gary Gensler disagreed that existing securities laws were unworkable with crypto — “does not cut it,” and it needs to “provide a reasoned justification for refusing to engage in rulemaking.”
The denial was “arbitrary and capricious” as the SEC failed to explain how securities laws apply to crypto while it “[enforced] those rules aggressively” by suing multiple crypto companies for securities laws violations, Coinbase claimed.
Coinbase asked the court to grant its petition for review, rebuff the SEC’s denial and force the regulation to begin the rulemaking process.
In an accompanying March 11 X post, Coinbase legal chief Paul Grewal wrote that if the SEC “believes it can lawfully assert new authority over digital assets today (it can’t), it must explain why in a rulemaking process and give the public a chance to understand and challenge that view.”
SEC flipflopped on its claimed authority
Coinbase’s 78-page brief also claims the SEC “abruptly changed positions” when it comes to crypto.
In the past, the SEC said it had “limited authority” over crypto and there was a legal “lack of clarity,” but later, the agency said it had enough authority to police crypto, Coinbase claimed.
The exchange alleged the SEC didn’t have the power to change tact as it needed approval from Congress — which Coinbase, Kraken, Binance and others have argued in motions to dismiss SEC lawsuits against them.
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“If the SEC insists on plowing ahead without congressional authorization, that decision must be made and implemented through prospective rulemaking,” Coinbase wrote.
Coinbase’s appeal against the SEC’s rulemaking denial is a separate court biff from the SEC’s June 2023 lawsuit against Coinbase which alleged it operated as an unlicensed exchange and offered unregistered securities.
In January, Coinbase and the SEC held oral arguments over the exchange’s dismissal motion in that case — which used much of the same claims it’s made in this one, that the SEC has no authority over crypto exchanges unless Congress says so.
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