Coinbase Sues SEC over Silence on 2022 Rulemaking Petition

Coinbase has filed a suit against the Securities and Exchange Commission (SEC) for failing to respond to its July 2022 petition that asked the US securities watchdog to provide guidance for the cryptocurrency industry using its formal rulemaking process. The crypto exchange disclosed the suit on Monday, noting that it simply requested that the federal court “ask the SEC to share its decision” on the petition.

Today, we filed a narrow action in the U.S. Circuit Court to compel the SEC to respond “yes or no” to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry. 1/4 https://t.co/rlsS1DIFfl

Coinbase Seeks Regulatory Clarity

In the petition, Coinbase asked that the SEC “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods [such as crypto exchanges], including potential rules to identify which digital assets are securities.” In a blog post published on Monday, the crypto exchange noted that the petition has generated over 1,700 submitted comments from entities and individuals, “echoing the request for clarity.”

“The rulemaking process is a critical step to giving the public notice about what activities they can and cannot engage in,” Paul Grewal, Coinbase’s Chief Legal Officer, explained in the blog post. “So until the crypto industry gets that clarity, we will continue to take every step available to us to seek it, which includes today’s filing.”

Coinbase’s suit comes a month after the largest US crypto exchange got a Wells notice from the SEC, stating that it has been violating the US securities law by offering unregistered securities. Reacting, Grewal faulted the notice, noting that the securities watchdog previously declined the exchange's request to state which specific assets on its platform it considers to be securities.

Coinbase received a Wells notice from the SEC. After years of asking for reasonable crypto rules, we're disappointed that the SEC is considering courts over constructive dialogue. But if courts are required, so be it. We'll defend the rule of law. 1/15 https://t.co/MXpc0RhNj4

In recent months, the SEC has doubled down on its enforcement actions against crypto executives, exchanges and lenders, noting that their crypto offerings were unregistered securities. Executives such as TRON Founder, Justin Sun and Terraform Labs and CEO, Do Kwon as well as platforms such as Kraken, Gemini and Genesis, are all facing regulatory pressure in this regard.

In the context of these developments, Grewal noted that Coinbase and other crypto firms face potential regulatory enforcement actions from the SEC despite not knowing which of the agency's existing securities laws apply to their businesses.

“From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet,” Grewal said, adding that “regulatory clarity is overdue for our industry.”

House Republicans Release Draft for Stablecoin Regulation

Meanwhile, on Monday, Republicans from the US House of Representatives Financial Services Committee released a draft of the proposed bill to regulate stablecoin issuers. The draft was introduced last year as a bipartisan bill sponsored by the Committee Chair, Maxine Waters, who is a Democrat, and Patrick McHenry, a Republican.

However, the latest draft lacks support from the Democrats as they have called it outdated. Waters during the first 2023 hearings on the bill held last Wednesday noted that the bill does not represent the negotiations agreed by the political blocs.

The bill seeks to provide rules to govern registration and the approval of prospective stablecoin issuers, state reserve requirements and outline the roles of federal and state regulators in stablecoin regulation, among other areas of focus. The latest Republican draft, among other things, states that stablecoins are not securities, suggesting they should not be supervised by the SEC.