Coinbase, one of the largest cryptocurrency exchanges in the United States, has once again demanded that the Securities and Exchange Commission (SEC) take prompt action on its request for formal rules on digital assets. In a filing submitted to a Manhattan federal court, Coinbase accused the SEC of “troubling intransigence” for refusing to act on its rulemaking petition, which was filed last year.
The SEC previously called for a delay in responding to Coinbase’s petition, but the recent filing by its lawyers indicated that no guidance had been issued yet. Coinbase’s outside counsel, Eugene Scalia, wrote that this pattern of inaction shows that the SEC has no intention of taking action on the request, leaving digital assets “stuck in an unprecedented Catch-22.”
Scalia, a partner at Gibson Dunn and the son of late Supreme Court Justice Antonin Scalia, argued that the SEC’s response is mere bureaucratic pantomime and that nothing short of a judicial order, known as mandamus, will prompt the agency to take its obligations seriously. A mandamus is a writ from a higher court ordering a lower court to perform its statutory duty.
The original petition filed by Coinbase requested the SEC to clarify how companies can comply with federal securities laws in the context of digital assets. However, on June 6, the SEC sued Coinbase, alleging that it was operating as an unregistered securities exchange. Following the lawsuit, the U.S. Court of Appeals ordered the SEC to reveal whether it had decided to deny Coinbase’s petition.
Gary Gensler, the chairman of the SEC, has repeatedly stated that existing laws provide sufficient clarity on compliance for digital asset companies. He has accused such companies of refusing to abide by the rules. In its own filing, the SEC stated that its staff had issued a recommendation on Coinbase’s petition. However, Scalia argued that this response was inadequate and deliberate, serving as a tactic to avoid judicial review of the denial.
To support his claim that the SEC denied the petition, Scalia pointed out that the SEC’s Division of Corporate Finance asked Coinbase CEO Brian Armstrong to remove a disclosure stating that there is “no certainty” regarding the regulation of digital assets. This request, Scalia argued, contradicted a previous letter to Armstrong that requested the provision be added.
If the SEC now has a recommendation related to Coinbase’s rulemaking petition, Scalia urged the court to require the SEC to make its recommendation public within 30 days. He concluded that the SEC has resolved not to conduct the requested rulemaking, and the recent actions of the Commission’s staff indicate that it is ready to move forward.
Coinbase’s ongoing battle with the SEC highlights the need for clarity and regulation in the cryptocurrency industry. Without clear rules, companies like Coinbase are left in a state of uncertainty, facing potential legal challenges and regulatory hurdles. Both the SEC and Coinbase have different perspectives on the existing legal framework, and this disagreement will likely continue until a resolution is reached.
As the cryptocurrency market continues to grow and gain mainstream acceptance, it is crucial for regulators to establish clear guidelines that protect investors while fostering innovation and growth in the industry. The outcome of Coinbase’s petition could have far-reaching implications for the regulation of digital assets in the United States.