Coinbase brought a case against the SEC at the US Court of Appeals for the Third Circuit after the agency in December denied the exchange’s request for rules clarifying legal standards for determining whether digital assets are securities.
In a brief filed Monday, Coinbase argued the SEC’s refusal to make crypto rules violates the Administrative Procedure Act. The agency also violated the law by failing to provide a reasoned explanation for denying Coinbase’s rulemaking petition, the crypto exchange said.
“The SEC cannot effect a sea change in a two trillion-dollar industry without articulating its authority, position, and rationale, considering all aspects of the problem, and providing fair notice,” Coinbase said.
The SEC under Chair Gary Gensler has viewed most digital assets as securities and argued crypto exchanges should register with the agency. It has brought dozens of enforcement actions related to cryptocurrencies, including 46 last year, according to Cornerstone Research.
Coinbase, which has been sued by the SEC and accused of illegally operating an unregistered securities exchange, argues that registration isn’t required, or even possible, under the existing rules.
It accused the SEC of choosing a “scorched-earth” enforcement campaign, rather than going through a rulemaking process where “the lack of legal basis for its self-aggrandizement would be laid bare.”
The SEC, in denying Coinbase’s rulemaking petition, said it “disagrees” with the exchange that the existing framework isn’t workable. Coinbase said Monday that kind of conclusory statement doesn’t justify the lack of action.
“It is arbitrary on its face, and it goes to the heart of the opaque, oppressive nature of the SEC’s enforcement campaign as a whole,” Coinbase said.
The SEC declined to comment Tuesday.
Gibson, Dunn & Crutcher LLP represents Coinbase.
The case is Coinbase Inc v. SEC, 3d Cir., No. 23-03202, brief filed 3/11/24.
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