Coinbase Inc. has found itself in the midst of a legal battle against the U.S. Securities and Exchange Commission (SEC) as they seek to establish clear regulatory guidelines for the crypto industry. Notable supporters, including Paradigm, the Crypto Council for Innovation, and other organizations, have submitted amicus briefs to the circuit court in support of Coinbase’s position. These amicus briefs were filed to bolster Coinbase’s appeal, which originated from a petition the exchange filed in July 2022, urging the SEC to create rules for tokens classified as securities. The commission’s rejection of the petition in December 2023 sparked Coinbase’s appeal and led to the recent submission of amicus briefs.
Call for Clarity and Predictability in Regulation
In filings submitted to the Third Circuit Court of Appeals, various organizations such as the Crypto Council for Innovation (CCI), Satoshi Action Fund, Texas Blockchain Council, Paradigm, Lejilex, and the U.S. Chamber of Commerce voiced concerns over the SEC’s lack of clear guidelines for the crypto market in the United States. These supporters argued that without clear regulatory frameworks, companies may consider moving their operations out of the country. The CCI criticized the SEC’s denial of Coinbase’s petition, stating that it undermines fairness and harms consumers and innovators. Similarly, the U.S. Chamber of Commerce highlighted the risks associated with the SEC’s failure to provide clarity for the crypto industry, emphasizing the need to adapt regulation to new circumstances.
The joint filing from the Satoshi Action Fund and Texas Blockchain Council stressed the importance of clear rules rooted in congressional authority, especially when the SEC imposes negative consequences and liability on the digital asset industry for past actions taken in good-faith reliance on the SEC’s guidance. Additionally, Paradigm criticized the SEC’s insistence on a centralized issuer model for registration, noting that it hampers meaningful disclosures to the public. The brief also pointed out dissent within the SEC, with Republican commissioners expressing disagreement with Chair Gary Gensler’s regulatory stance. Both Paradigm and CCI emphasized the necessity of predictability in compliance, criticizing the SEC’s ad-hoc enforcement approach over precise rules.
Coinbase’s Legal Battle and Regulatory Predictability
Paul Grewal, Coinbase’s chief legal officer, expressed his gratitude for the support received from various groups in their legal battle against the SEC. Grewal highlighted the importance of regulatory predictability for compliance, noting that Coinbase’s petition for rulemaking aims to establish clear guidelines for the industry. Despite filing a writ of mandamus in April 2020 to compel the SEC to respond to their petition, the SEC rejected the request, citing potential years for rulemaking to occur. In December 2023, SEC Chair Gary Gensler referenced existing laws and regulations, stating that investors and issuers in the crypto securities markets deserve protection under securities laws.
While SEC Commissioners Hester Peirce and Mark Uyeda acknowledged Gensler’s points, they argued that the issues raised in Coinbase’s petition should be addressed through public roundtables and requests for comment. In March, Coinbase took legal action against the SEC, filing a lawsuit to compel the regulatory body to provide clear guidelines for the cryptocurrency industry. The exchange argued that the lack of clear regulations hindered industry progress and created uncertainty. The timeline for the appellate court’s decision on the Coinbase case remains uncertain, amidst recent enforcement actions by the SEC against various crypto firms and a U.S. district court’s sanctions on the SEC for bad faith behavior in a lawsuit against Debt Box, raising concerns about the commission’s conduct in other cases.
The battle for crypto regulation continues to intensify as Coinbase and its supporters rally against the SEC for clear and predictable guidelines in the industry. The outcome of this legal fight has the potential to shape the future of crypto regulation in the United States and beyond.
