Coinbase, a leading crypto exchange, has filed its closing brief in a lawsuit challenging the Securities and Exchange Commission (SEC). The case centers on the SEC’s denial of rulemaking petition by Coinbase, which the exchange argues is crucial for the digital asset industry. In addition, the brief highlights the regulatory agency’s shift in stance regarding crypto.

Contents Of Coinbase’s Closing Brief

At the heart of Coinbase’s argument is a single, controversial sentence in the SEC’s denial. The SEC’s order merely “disagree[d]” with Coinbase’s concerns about the workability of current SEC rules for digital asset firms. Coinbase claims this disagreement lacks reasoned decision-making. “The SEC’s order must be vacated on this elementary ground alone,” wrote Paul Grewal, Coinbase’s Chief Legal Officer.

Coinbase’s brief describes a troubling pattern of SEC behavior. The SEC has demanded compliance from digital asset firms based on an expansive interpretation of its authority, yet it has refused to establish clear rules to enable such compliance. Instead, the SEC has launched extensive litigation against companies for failing to comply with unclear regulations.

“This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it,” the brief asserts. Moreover, Grewal elaborates on the broader implications of the regulatory agency’s stance. In addition, the SEC claims it doesn’t need to make compliance feasible for the industry.

“The SEC apparently views its rules not as tools to enable compliance with federal statutes, but as weapons to dismantle industries it disfavors,” the closing brief states. Moreover, the agency’s justification for its stance includes pointing to its numerous enforcement actions as proof that existing rules are workable.

Furthermore, Coinbase counters that these enforcement actions are merely part of a broader strategy to crush the digital asset industry. “They are a bludgeon—by design,” Coinbase argues. The brief also addresses the inconsistency in the SEC’s approach to digital assets over the years.

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Shift In SEC Chair Gary Gensler’s Stance

SEC Chair Gary Gensler‘s statements have shifted from acknowledging the lack of a clear regulatory framework for crypto exchanges in 2021 to asserting broad regulatory authority a year later. Additionally, the SEC allowed Coinbase to go public in 2020 without indicating its business model violated securities laws. Now, the SEC is suing Coinbase, claiming those same business practices are unlawful.

Moreover, the crypto exchange emphasizes that the SEC’s shifting positions and inconsistent enforcement actions have created a climate of confusion and uncertainty. For instance, while Bitcoin and Ether are not considered securities, the SEC has not clarified why other digital assets are treated differently. This inconsistency is exemplified by the SEC’s selective targeting of tokens in its enforcement actions.

The SEC’s reliance on its vague “facts and circumstances” standard for determining whether digital assets are securities is another point of contention. Coinbase argues that this standard is too abstract and fails to provide clear guidance. “The SEC has never coherently explained why the facts and circumstances underlying Bitcoin and Ether lead to a different result than the facts and circumstances underlying the tokens it has claimed are securities,” the CEX states.

Moreover, Coinbase highlights that rulemaking is the appropriate mechanism to address these issues. Rulemaking would require the SEC to articulate a clear theory of its regulatory approach, subject it to public comment, and ensure judicial review before enforcement. This process would provide the necessary clarity and fairness for the digital asset industry.

Coinbase’s closing brief underscores the necessity of judicial intervention. In addition, the company urges the court not only to vacate the SEC’s order but also to mandate rulemaking. “Only a court order directing [the SEC] to commence rulemaking will end its caprice,” the brief concludes.

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