Coinbase filed a closing brief with the U.S. Court of Appeals for the Third Circuit on May 31, challenging the SEC’s denial of its petition for rulemaking.
The case centers on a single, conclusive sentence in the SEC’s decision, which “disagreed” with Coinbase’s claim that current SEC rules are unworkable for digital asset companies.
The exchange states that this lack of reasoned decision-making should result in the regulator’s order being revoked. Additionally, Coinbase wants the court to mandate the SEC to participate in regulation of the crypto industry.
Coinbase Chief Legal Officer Paul Grewal emphasized the importance of this legal battle on social media and criticized the SEC for not providing substantive reasoning behind the disagreement. He said:
“The SEC’s order should be rescinded in this basic area only.”
Grewal highlighted the broader implications of the SEC’s position, claiming that the SEC is overstepping its jurisdiction without clear authorization from Congress and without establishing clear rules for the fast-growing digital asset industry.
Refusal to give rules
Grewal also raised concerns about the SEC’s approach, accusing the agency of trying to stifle the digital asset industry. He said:
“The SEC is out to stifle the digital asset industry and refuses to provide the necessary regulations the industry has been asking for to ease the pressure.”
This sentiment is echoed in Coinbase’s legal brief, which argues that the SEC’s actions are part of a deliberate attempt to destroy an industry by forcing compliance with unworkable regulations.
The letter filed by Coinbase argues that the SEC’s failure to engage in proper rulemaking violates the Administrative Procedure Act (APA), which requires agencies to engage in rulemaking for major policy changes.
Coinbase argues that the SEC’s policies on digital assets are inconsistent and lack a coherent legal standard, making compliance impossible for industry participants. In short it says:
“The SEC’s position has changed radically and continuously, creating uncertainty and confusion.”
The filing also highlights the agency’s conflicting statements over the years and aggressive enforcement actions, which targeted only a subset of digital assets without clear guidance.
Untenable situation
Coinbase’s legal team argued that the SEC should engage in regulation to establish clear and workable standards for digital asset companies.
The letter points out that the SEC’s current position effectively leaves the entire digital asset industry out of compliance with existing rules, a situation that is “unsustainable and unfair.”
The case has attracted significant attention from the crypto community and regulatory observers as it could have far-reaching implications for the regulation of digital assets in the US.
Coinbase’s challenge illustrates the ongoing tension between the digital asset industry and regulators as the industry seeks clarity and fair treatment under the law.
The Third Circuit’s decision on this issue will be closely watched as it has the potential to shape the future of digital asset regulation and determine the extent of the SEC’s authority over the industry.