Coinbase’s Rulemaking Petition: SEC’s Response Raises More Questions Than Answers

The legal battle between Coinbase and the Securities and Exchange Commission (SEC) took a significant turn as the SEC made a recommendation related to Coinbase’s rulemaking appeal, a crucial component of their mandamus action. 

Coinbase’s Chief Legal Officer, Paul Grewal, revealed that the SEC communicated with the Third Circuit regarding Coinbase’s rulemaking petition, shedding light on the case’s progress. 

SEC Develops Recommendation In Coinbase’s Legal Battle

On October 10, the SEC staff submitted a recommendation to the Commission, following Coinbase’s mandamus petition filed in April 2023, which sought a prompt response to their July rulemaking appeal. 

The Court had granted the SEC a 120-day period to provide a reply. While Coinbase’s Chief Legal Officer expressed gratitude for this latest step, more details regarding the recommendation must be answered. 

The update needs to provide a formal, public answer to Coinbase’s rulemaking petition, leaving the timeline for a decision by the SEC undisclosed.

Grewal also expressed frustration with the SEC’s delay in providing a definitive response and urged the SEC to communicate its timeline for a decision to the Court. 

Given the SEC’s ongoing enforcement actions in the crypto industry, Coinbase seeks transparency and clarity regarding its rulemaking petition. The company emphasizes the importance of the SEC fulfilling its obligations and avoiding further delays or deferrals. Grewal said:

Today the SEC provided its court-ordered update to the Third Circuit in Coinbase’s mandamus action: yesterday the SEC staff made some kind of recommendation to the Commission related to our rulemaking petition. That’s it. That’s the whole update. We’re grateful that the Court’s order inspired this small step. But a formal, public answer to the petition is still long overdue. And given their ongoing enforcement campaign against crypto, the SEC should at least tell the Court its timeline for a decision. No more kicking the can down the road–please. 

State Regulators Support SEC

According to an October 10 filing, The North American Securities Administrators Association (NASAA), representing state and provincial securities regulators across North America, has filed an amicus brief supporting the SEC in its ongoing lawsuit against Coinbase. 

NASAA, comprising regulatory bodies from the United States, Canada, and Mexico, has a long-standing mission to protect investors from fraud and abuse in the securities market. 

However, some proponents of cryptocurrencies contend that the association’s support for the SEC in this case reflects a broader bias against the crypto industry, ignoring its potential benefits and stifling progress.

Critics argue that NASAA’s characterization of digital assets as a significant threat to investors fails to acknowledge the strides made in implementing robust security measures and regulatory compliance within the industry. 

In recent years, numerous reputable cryptocurrency exchanges, including Coinbase, have introduced stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures to enhance security and prevent illicit activities.

As the lawsuit against Coinbase unfolds, it raises important questions about the future of cryptocurrency regulation. Striking the right balance between investor protection and fostering innovation is crucial to ensure the industry’s long-term success.

Featured image from Shutterstock, chart from TradingView.com