After dynamics between the two curdled substantially during the past year and change, as a result of the agency dramatically ramping up its crypto regulation by enforcement approach, the at-odds actors are now duking it out in court over establishing regulatory clarity for the digital asset sector with regard to what constitutes operational compliance.
As overseer, the SEC enjoys the upper hand.
The U.S. agency this week (May 15) filed a court order seeking to dismiss Coinbase’s push for a response to its rules petition while acknowledging that it will continue to use enforcement actions as a substitute for rulemaking for the foreseeable future.
The U.S.-based crypto exchange sued on April 24 to get the SEC to respond to its rulemaking petition.
“It is unreasonable for the SEC — an agency with over 4,500 employees — to take nine months (and counting) to complete that simple task,” Coinbase said in the federal court filing.
The agency replied that, “no statute or regulation requires the Commission to take such action on a specific timeline. Nor is there any precedent supporting Coinbase’s request.”
The SEC was ordered by a U.S. court to file its response to Coinbase. In that response, the SEC alleged Coinbase does not enjoy the right to mandamus, which orders a government agency to fulfill certain duties.
“Mandamus is an extraordinary remedy … Coinbase’s preference for faster or different regulatory action by the Commission does not entitle it to extraordinary relief from this court … ordering the Commission to act on a rulemaking petition that has been pending for well under a year,” the SEC wrote in its filing, adding, “The petition should be denied.”
Coinbase, which is the biggest crypto exchange in the U.S., initially filed its suit hoping to compel the SEC to reply to its petition, which was itself filed in July 2022, in response to a Wells Notice the exchange received in March 2023.
“Based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet,” Coinbase said in a statement at the time.
Wells Notices general precede formal regulatory enforcement action from the SEC. As of writing Coinbase has yet to be officially charged.
The SEC did not immediately reply to PYMNTS’ request for comment. Coinbase pointed to tweets by Paul Grewal, its chief legal officer, about the news.
“Overall the SEC’s response reinforces Coinbase’s longstanding concern that our industry does not have clarity on what the SEC may consider to be within or outside its jurisdiction at any time, and it is likely to continue changing its mind along the way,” Grewal said.
“The SEC also said that the public statements by Chair Gensler are not formal guidance or policy statements from the SEC and the public cannot rely on them as such,” he added.
As it relates to those public comments made by SEC Chair Gary Gensler, the agency chief has repeatedly emphasized his view that most digital assets, absent bitcoin and Ethereum, are securities and that the existing rules are quite clear — it’s just that crypto firms refuse to follow them.
Asked to comment on his agency’s dispute with Coinbase this Monday (May 15) at the Federal Reserve Bank of Atlanta’s Financial Markets Conference, Gensler reiterated that, “to make it quite direct, this is a field that has been operating largely non-compliant.”
“Our agency has put out rules … there is nothing about a new technology that makes it inconsistent with the rules that Congress has laid out … they need to come into compliance if they’ve got securities on their platforms,” he said.
In its push for operational legitimacy, Coinbase last Friday (May 12) established a new Global Advisory Council bringing together “top leaders to provide invaluable insights and strategic expertise to the Coinbase leadership team.”
Among the first members of the Council are former U.S. Sen. Patrick Toomey, and former congressmen Tim Ryan and Sean Patrick Maloney.
The rules, expected to be rolled out next year, mandate that firms must apply for a license if they wish to issue, trade and safeguard crypto assets, tokenized assets and stablecoins in the EU.