Coinbase, the US-based cryptocurrency exchange, has initiated legal action against the Securities and Exchange Commission (SEC), alleging that the regulatory body has acted arbitrarily and capriciously in refusing to adopt rules for clarifying oversight of the crypto industry. Coinbase asserts that the SEC has disregarded legal requirements in dismissing the company's formal rule-making petition for crypto regulations. The legal action, filed with the US Court of Appeals for the Third Circuit, contends that the SEC claims authority over crypto assets while refusing to establish new rules for their treatment, and the agency did not provide a clear explanation for rejecting Coinbase's petition in December.
According to Coinbase's legal representatives, the SEC's oversight of digital assets has been conducted through enforcement actions without a coherent framework. Gary Gensler, the SEC chairman, mentioned that the agency had been working on crypto rules, albeit not aligned with industry expectations, emphasizing the importance of maintaining discretion in setting rulemaking priorities. In response, Paul Grewal, Coinbase's legal officer, emphasized the lack of a clear reason for the SEC's inaction in the denial of the petition and stated that the public deserves an explanation and an opportunity to provide input.
The legal dispute between Coinbase and the SEC is separate from the ongoing court battle over allegations of running an unregistered exchange listing unregistered crypto securities. Both cases highlight the SEC's reluctance to formally define crypto securities, leaving the industry in uncertainty. Coinbase's lawsuit aims to dismiss the SEC's previous disapproval and compel the agency to initiate new crypto rulemaking or provide a substantiated rationale for its position.
The SEC has faced mixed outcomes in crypto-related court cases, experiencing defeats against Ripple and Grayscale but succeeding in an insider-trading case involving a former Coinbase employee. The industry closely watches these legal developments as they may shape the treatment of crypto exchanges under US securities law. The legal landscape is dynamic, with the potential for appeals and overturned decisions on the way to potential review by the US Supreme Court.
