Sunday, 17 December 2023
by Rose White
In an interesting turn in the long-lasting regulatory saga between Coinbase and the US Securities and Exchange Commission (SEC), the US securities regulator has formally denied the American exchange’s request for the creation of new rules guiding the use of digital assets. In a swift response, Coinbase has moved to counter this development, filing a petition in court to reverse the SEC’s decision.
On Friday, December 15, the SEC rejected Coinbase’s petition for rulemaking in regard to digital asset regulations. Expressing clear support for this decision, the Commission’s chairman Gary Gensler explained that existing securities law, such as the Howey Test, already applies to cryptocurrencies.
The SEC chief said:
To the extent that crypto assets are offered and sold in the form of an investment contract and entities intermediate transactions in crypto asset securities, the federal securities laws apply.
Furthermore, Gensler also stated that the SEC has already been actively involved in addressing the crypto securities market through rulemaking. In addition, the SEC chair also emphasized the importance of preserving the Commission’s discretion in setting its own rulemaking priorities.
As earlier stated, Coinbase is now looking to nullify the SEC’s latest decision. In an X post also on December 15, the exchange’s Chief Legal Officer, Paul Grewal, announced the crypto company has challenged the regulator’s denial of its rulemaking request in court.
Grewal expressed disappointment with the SEC’s rejection, deeming it “unwarranted” and asserting that Coinbase will once again seek legal recourse after 18 months of waiting for a response, as the exchange’s initial petition for rulemaking was submitted to the SEC in July 2022.
The Coinbase legal team has now filed a petition for review in the US Court of Appeals for the Third Circuit, seeking an assessment of whether the SEC’s rejection of its petition for rulemaking was justified.
In Coinbase’s petition for judicial review, the exchange’s legal team states that the SEC’s formal denial of its request for rulemaking makes explicit what was already evident—the Commission’s opposition to Coinbase’s proposal. The filing argues that the SEC’s action has now paved the way for a much-needed judicial review, removing the obstruction caused by the regulatory body’s prolonged inaction.
Meanwhile, Coinbase also remains in another legal battle with the securities regulator on charges of operating as an unregistered securities exchange, broker, and clearing agency.