The crypto exchange is appealing the SEC’s denial of its 2022 rulemaking petition, seeking clear digital asset regulations in court.
The ongoing Coinbase vs. SEC lawsuit has intensified in a federal appeals court in Philadelphia, with the leading U.S. crypto exchange contesting the regulator’s refusal to establish new rules for digital assets.
This hearing marks another chapter in the prolonged conflict between Coinbase and the SEC, as the exchange attempts to overturn the SEC’s rejection of its 2022 rulemaking petition.
Coinbase vs SEC Lawsuit: Denial of Rulemaking Petition
Coinbase has requested that the SEC provide a clearer legal framework for digital assets, arguing that existing securities laws are not applicable to the crypto industry.
The appeal is based on the SEC’s lack of response to a 2022 petition asking for more clarity on what qualifies as a security in the digital asset space and for a structured market framework for cryptocurrencies.
The SEC rejected Coinbase’s petition in December 2023, asserting that current regulations are adequate and disagreeing with the need for new rules.
As a result, Coinbase argues that this stance has left the crypto market in regulatory uncertainty, making it difficult for U.S.-based companies to comply with existing laws.
Court Hearing Highlights Regulatory Tensions
During the hearing, Coinbase criticized the SEC’s enforcement-driven approach, which they argue results in a lack of regulatory clarity.
The SEC has maintained that digital tokens fall under its jurisdiction and has categorized many tokens as securities, leading to lawsuits against several crypto companies, including Coinbase, for offering unregistered securities.
Jake Chervinsky pointed out inconsistencies in the SEC’s terminology, as its legal team has used the terms “digital asset securities” and “crypto asset securities” interchangeably.
This led one judge to remark that the SEC seems more focused on punishing companies than providing clear rules, aligning with the crypto industry’s criticism of “regulation by enforcement.” The judge said, “We won’t tell you the answer until we prosecute you.”
Coinbase CLO and Legal Observers Weigh In
Paul Grewal, Coinbase’s Chief Legal Officer, expressed dissatisfaction with the SEC’s actions, accusing the agency of offering no guidance while conducting an “arbitrary enforcement campaign.”
He emphasized that Coinbase is determined to secure regulatory certainty for millions of Americans holding cryptocurrencies, asserting that regulation by enforcement stifles innovation, harms consumers, and negatively impacts the U.S. economy.
Grewal also announced the hiring of Ryan VanGrack as the new Vice President of Litigation at Coinbase.
VanGrack, previously General Counsel at Citadel Securities, is expected to play a key role in Coinbase’s legal battles.
Grewal expressed confidence in VanGrack’s abilities, noting the company’s readiness to continue its fight against the SEC.
Legal analyst MetaLawMan shared insights on VanGrack’s appointment, recalling that Citadel had a history of challenging the SEC, notably regarding the Consolidated Audit Trail (CAT).
MetaLawMan commented, “I don’t know Ryan, but I do like the fact that Citadel was not afraid to sue the SEC over the CAT,” drawing parallels between Citadel and Coinbase’s disputes with the regulator.
SEC Seeks Extension in Separate Case Against Coinbase
In a separate legal matter, the SEC has requested an extension to complete the discovery process in its securities law violation case against Coinbase, suggesting that the discovery period should be extended until February 2025, after the next U.S. presidential election.
The SEC cited the need to review over 133,000 documents as a reason for the delay.
This extension request comes as SEC Chair Gary Gensler is set to testify before Congress regarding the SEC’s approach to cryptocurrencies.
The timing has led to questions about the SEC’s overall strategy, as the agency faces increasing pressure over its handling of the digital asset sector.
