The Court orders the SEC to Vague Denial of Coinbase’s Crypto Rulemaking Petition
Over its lack of logic in rejecting Coinbase’s petition for new cryptocurrency rules, the Securities and Exchange Commission (SEC) has come under criticism from the United States Court of Appeals for the Third Circuit. In July 2022, leading digital asset exchange Coinbase petitioned the SEC to create explicit guidelines for categorizing some cryptocurrencies as securities. When the SEC denied the request in late 2023 Coinbase brought the case the courts.
During court hearings on September 23, judges expressed reservations about the SEC’s denial’s justification and called it almost “vacuous.” Judge Thomas Ambro pointed out that the SEC has to offer some explanation even if it is not mandated. Reviewing the regulator’s brief reply, Ambrose said, “I don’t see the reasoning.”
Eugene Scalia, attorney for Coinbase, contended that the two-page denial from the SEC lacked weight, particularly given the several enforcement proceedings against cryptocurrency businesses. He attacked the SEC for imposing policies without offering direction on how companies in the digital asset space may follow those standards. Scalia argues that present SEC regulations make it unworkable for crypto firms to register with the agency.
Today @coinbase made oral arguments before the Third Circuit in our case against @SECgov’s repeated arbitrary and capricious denial of our petition for rulemaking, which we originally put forward over 2 years ago. Here’s the original petition: https://t.co/k0n2wwaBU9 1/5
— paulgrewal.eth (@iampaulgrewal) September 23, 2024
Chief legal officer Paul Grewal of Coinbase reflected this in a post criticizing the SEC of not offering a logical justification for their ruling. He underlined that although lacking the required regulatory clarity, the SEC has kept enforcing measures against the crypto sector.
The judges also voiced worries about the challenges crypto businesses have following current regulations, which might not be appropriate for the fast developing digital asset sector. Judge Stephanos Bibas noted that although the SEC has expressed interest in crypto-related enforcement, it has not issued any high-level direction. He asked why the agency emphasizes punishing businesses instead of looking at the more general regulatory structure.
The SEC responded by defending its choice, pointing other goals and current initiatives as grounds for turning down Coinbase’s regulation proposal. The legal agent of the SEC also underlined that Coinbase had been accused in June 2023 for running as an unregistered securities exchange, broker, and clearing agency.
As businesses like Coinbase try to negotiate ambiguous and antiquated standards, the court’s inquiry reflects mounting annoyance with the SEC’s approach to crypto control. The result of this lawsuit might force the SEC to move toward offering the digital asset sector more exact direction.
