Regulation

Agency Doubles Down On Denying Exchange’s Rulemaking Petition

Published

11 months ago

May 11, 2024

Coin2049 Newsletter

Amid the legal dispute between crypto exchange giant Coinbase, Inc. and the Securities and Exchange Commission (SEC), tensions have escalated. As the Coinbase vs SEC lawsuit escalates, the regulatory agency reaffirmed its decision to reject CEX’s petition for rulemaking. This comes shortly after the SEC also opposed Coinbase’s interlocutory appeal.

SEC’s Arguments Against The Coinbase Petition

At the heart of the dispute lies Coinbase’s petition for the SEC to overhaul existing securities regulations and establish a new regulatory framework tailored specifically for crypto asset securities. The exchange argued that the current regulatory landscape is “unworkable” for crypto assets. Moreover, it also cited difficulties in compliance and the need for a more comprehensive approach to regulation.

However, the SEC remained steadfast in its position, according to the latest filing. It defended the existing regulatory framework, which has been meticulously crafted over decades. Furthermore, the agency noted that the frameworks continues to effectively protect investors, maintain market integrity, and facilitate capital formation.

In addition, the Commission emphasized that courts have consistently applied existing securities laws to crypto asset securities. It also pointed to ongoing regulatory initiatives and competing priorities as reasons for denying Coinbase’s petition.

One of the key contentions raised by Coinbase was the assertion that fair notice required rulemaking, particularly in light of perceived changes in the SEC’s authority over crypto asset securities. The exchange argued that enforcement actions taken by the Commission signaled a need for clarity and specificity in regulatory guidance.

However, the SEC dismissed these claims, maintaining that its authority remains unchanged and that enforcement actions are distinct from the rulemaking process. In response to Coinbase’s argument that the Commission’s explanation for denying the petition was insufficient, the SEC defended its decision. The agency stated that it had provided a reasoned explanation in accordance with the Administrative Procedure Act.

Moreover, the Commission underscored its careful consideration of Coinbase’s petition and its determination that the requested rulemaking was not warranted at the present time. In addition, the SEC affirmed that they’ll seek “proper remedy” if the court disagrees with their stance.

Opposition To Interlocutory Appeal

Coinbase’s Chief Legal Officer, Paul Grewal, has once more criticized the SEC for its inconsistency. This time, he’s focused on the SEC’s opposition to Coinbase’s request for an Interlocutory Appeal. This follows a previous denial of Coinbase’s Motion to Dismiss (MTD).

The SEC, led by Gary Gensler, has opposed Coinbase’s appeal, arguing that the Court should reject it. Coinbase’s appeal is based on discrepancies in a 1946 U.S Supreme Court case that the SEC frequently references. It particularly spotlights the classification of assets as investment contracts.

This Coinbase vs SEC dispute stems from the Howey Test, a contentious measure for crypto innovators. However, Grewal highlighted the SEC’s contradictory arguments, pointing to similar appeals in the Ripple Labs lawsuit where the SEC’s stance differed.

Grewal emphasized the importance of honesty between the regulator and Coinbase. He called for genuine dialogue, noting the lack of consensus even among district judges in the same courthouse regarding the application of the Howey Test to digital assets.