Coinbase Counters SEC’s Disregard for Petition, Calls for Clarity on Crypto Regulations
In a fierce battle between Coinbase, the largest cryptocurrency exchange in the United States, and the Securities and Exchange Commission (SEC), Coinbase has responded to the regulatory body’s refusal to provide guidance on crypto regulations following a petition. The exchange’s Chief Legal Officer, Paul Grewal, announced on May 23 that the firm has replied to the SEC’s arguments against its petition for a writ of mandamus.
A writ of mandamus is a court-issued order compelling a public official or entity to fulfill their duty associated with the office they hold, in this case, the SEC. Grewal stated,
“Mandamus is the tailor-made remedy for the extraordinary facts presented here. We continue to appreciate the Court’s consideration.”
Coinbase’s struggle with the SEC began when it filed a petition in July 2022, urging the regulatory body to provide long-overdue guidance for the cryptocurrency industry. However, the petition was ignored. In April, the firm filed the petition again in an attempt to prompt the SEC into responding.
Earlier this month, the SEC finally responded, asserting that Coinbase had no right to request regulatory clarity, as existing securities rules were sufficient. Adding to Coinbase’s troubles, the SEC issued a Wells notice, indicating a potential enforcement action against the firm, in March. Despite Coinbase’s calls for open dialogue, the SEC has remained unresponsive.
In the recent court filing, Coinbase argued that the issue stemmed from the SEC’s reliance on regulation through enforcement, which it deemed to be the problem, rather than the solution. The filing stated,
“The SEC’s delay in deciding whether to conduct a rulemaking is indefensible given its decision to pursue an aggressive, accelerating enforcement campaign regarding the very topics identified in Coinbase’s petition”.
Moreover, Coinbase highlighted that the SEC had received five petitions regarding rulemaking clarity since 2017, yet it failed to take action on any of them. Seeking resolution, Coinbase’s legal counsel requested that the court issue a writ of mandamus, compelling the SEC to respond to the rulemaking petition within seven days or provide an explanation for the delay. It is expected that the SEC will reiterate its previous stance that the rules for securities trading are already clear in its upcoming filing.
Adding to the complexity of the regulatory landscape, the chair of the Commodities and Futures Trading Commission (CFTC), Rostin Behnam, recently commented on the classification of cryptocurrencies. Behnam stated in a Bloomberg podcast that most cryptocurrencies were not securities according to the Commodity Exchange Act (CEA). He emphasized that the CFTC ensures assets are legally recognized as commodities before they can be listed, referring to the approval of Bitcoin and Ethereum exchange-traded funds (ETFs) in 2017 and 2020. Behnam remarked,
“If you look up the definition of a commodity under the CEA, nearly everything is a commodity, including securities”.
This statement adds another layer of complexity to the ongoing debate surrounding the classification and regulation of cryptocurrencies in the United States.
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