Coinbase takes legal action against SEC for clarity in cryptocurrency regulation.

Coinbase announced Monday that it has filed an opening brief with the U.S. Court of Appeals for the Third Circuit. This is an appeal challenging the U.S. Securities and Exchange Commission’s (SEC) refusal to provide clear guidance for the cryptocurrency industry. Paul Grewal, Chief Legal Officer post At X.

today @Coinbase We filed an opening brief in the Third Circuit to challenge the SEC’s denial of our rulemaking petition. Summary: The SEC’s denial is arbitrary, capricious, an abuse of discretion, and a violation of the Administrative Procedure Act. 1/7 https://t.co/v09uE2OHsb

– paulgrewal.eth (@iampaulgrewal) March 11, 2024

in short As of March 11, 2024, Coinbase noted that the SEC has said for years that its legal authority over digital assets is limited or unclear. However, after a sudden policy reversal in which the SEC began treating most digital assets as securities, it began regulating the industry through enforcement rather than clear rulemaking.

According to Coinbase, the SEC’s approach unfairly places companies in a difficult position because they now have to comply with rules that are neither clear nor directly applicable. The company argues that if the SEC believes it has authority over digital assets, it should formalize that position through rulemaking.

Coinbase also criticizes the SEC for ignoring its rulemaking petition for 20 months and dismissing it without the slightest explanation, despite significant industry input. In December 2023, the SEC denied Coinbase’s petition seeking clarification on cryptocurrency governance regulations. The agency did not provide satisfactory reasons for its decision to decline. Coinbase argues that this denial demonstrates the SEC’s arbitrary and oppressive enforcement campaign.

“This is arbitrary on its face and goes to the heart of the opaque and oppressive nature of the SEC enforcement campaign as a whole,” Coinbase emphasized.

“The SEC requires the industry to comply with inapplicable, inadequate and still-evolving securities law requirements or join the many companies currently facing enforcement actions, including Coinbase. But the SEC refuses to undertake the rulemaking necessary to set stable standards, demonstrate how it believes it is possible to comply with unrelated requirements, and provide a path to do so,” Coinbase added.

This legal action is not directly related to the ongoing litigation between Coinbase and the SEC. The SEC filed a lawsuit in June last year claiming that cryptocurrency exchange Coinbase violated U.S. securities laws. The outcome of this case is expected to clarify the classification of certain cryptocurrency assets, which the SEC argues are securities and therefore should fall under the SEC’s jurisdiction.

Different rulings in previous legal battles between the SEC and other crypto companies such as Ripple Labs and Terraform Labs have further complicated the matter.

The SEC sued Ripple Labs, the company behind XRP, alleging that its sale of XRP to the institution was an unregistered securities offering. In July of last year, the court ruled that Ripple’s direct sales were securities, but secondary transactions on the exchange were not.

The SEC also sued Terraform Labs for offering four tokens as unregistered securities. However, the court ruled in favor of the SEC in this case.

Moreover, while these cases focused on the initial issuance, the Coinbase-SEC case focused on whether trading tokens on these major exchanges constituted securities sales.