Coinbase Takes SEC to Court Over Crypto Regulations

Coinbase has sued the SEC to get clarity on the agency’s approach to crypto regulation.

In a federal court action filed Monday (April 24), the cryptocurrency exchange asks a judge to compel the Securities and Exchange Commission to release its response to a petition from last year asking the SEC to “propose and adopt rules to govern the regulation” of digital assets.

Reached by PYMNTS, the SEC declined to comment. The filing comes as the SEC ramps up its scrutiny on the crypto sector, leaving companies like Coinbase to consider moving their operations offshore.

“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,” Paul Grewal, Coinbase’s chief legal office, wrote on the company’s blog.

“But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision.”

Grewal acknowledges the company’s action is unusual, but argues it is also unusual “for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public.”

Last month, Coinbase said it had received a Wells notice from the SEC related to the exchange’s listing of potential unregistered securities across its suite of digital asset products and services. As PYMNTS noted, these notices are not formal charges or lawsuits — but in many cases can lead to them.

Coinbase CEO Brian Armstrong had indicated in a recent CNBC interview that the company might have to seek court assistance in its dealings with the SEC.

“It’s really unfortunate. I think we’re going to have to actually end up going to court to get the clarity we need and create that case law,” he said last week.

In the past six years, the SEC has taken legal action against more than 100 crypto defendants, PYMNTS wrote last week as the agency’s chair, Gary Gensler, defended his organization’s approach in testimony before the House Financial Services Committee.

“Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the SEC,” Gensler said, adding that the crypto sector entails “risks and conflicts the commission does not allow in any other marketplace.”

Many lawmakers, Financial Services Chairman Patrick McHenry among them, have made arguments similar to those of the crypto industry: that the SEC’s disclosure rules were made for traditional markets and don’t work when applied to the digital currency sector.

“To date, the SEC has forced digital asset market participants into regulatory frameworks that are neither compatible with the underlying technology nor applicable,” wrote committee Republicans in a letter to Gensler prior to the hearing.