Coinbase Exchange started a lawsuit against the U.S. SEC and FDIC, accusing them of pressuring banks to limit access for crypto firms.
Coinbase, a prominent cryptocurrency exchange, has filed two lawsuits against the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC). These lawsuits were lodged in the U.S. District Court for the District of Columbia. Coinbase asserts in the filings that these federal agencies must fulfill Freedom of Information Act (FOIA) requests. Additionally, Coinbase is pursuing a court order to compel the agencies to disclose the requested information.
Coinbase Requests Disclosure of SEC’s Ethereum Investigation Documents
The exchange contracted History Associates Inc., a consulting firm, to submit the FOIA requests. Additionally, the petitions contend that the SEC and FDIC have been employing regulatory measures to impede the expansion of the crypto industry by restricting its access to the banking sector.
“For nearly two years, a diverse group of federal financial regulators, including the Securities and Exchange Commission, the FDIC, and the Federal Reserve Board, have employed every regulatory instrument at their disposal to attempt to cripple the digital-asset industry,” according to the complaint against the FDIC.
Additionally, the lawsuit seeks to reveal the FDIC’s involvement in what Coinbase characterizes as an illicit scheme. Therefore, the FOIA requests submitted to the SEC were designed to obtain information regarding the agency’s position on Ethereum (ETH). This inquiry is in response to a recent lawsuit filed by Consensys, a blockchain software company, against the Securities and Exchange Commission.
The SEC’s Director of the Division of Enforcement, Gurbir Grewal, had previously authorized an investigation into “Ethereum 2.0” in March 2023. The investigation concentrated on entities and individuals involved in the Ethereum trading market. Subsequently, the SEC declared that the investigation was being concluded.
CLO of Coinbase Paul Grewal disclosed the situation. In a post on X, he stated, “We requested documents from the SEC regarding closed investigations to gain insight into the SEC’s newfound, expansive (and unlawful) authority.” ETH was the subject of one of those investigations, which was only recently concluded when the SEC publicly declared that ETH was not a security in 2018. The other investigations have been concluded for years. But the SEC stonewalled our requests.”
History Associates requested “access to all copies and records concerning Ethereum’s shift to a proof-of-stake consensus mechanism.” However, the SEC denied this request and subsequently rejected the appeal.
Exchange Requests Additional Information Regarding Another Case
Furthermore, History Associates submitted FOIA requests for two completed investigations involving Zachary Coburn and Enigma MPC. In 2018, the SEC settled with Coburn, the founder of the Ether Delta trading platform, after the agency determined that the platform should have been registered as an exchange.
After being accused of offering unregistered securities, Enigma MPC, a data encryption startup, settled with the Securities and Exchange Commission (SEC) in 2020. The SEC denied the FOIA requests despite these cases being resolved years ago. The agency contended that disclosure “could be reasonably anticipated to result in harm to the related, ongoing, and active enforcement proceedings.”
Nevertheless, Coinbase contended that the SEC’s justification for withholding documents from investigations that resulted in settlements years ago is specifically designed to impede the legitimate objectives for which Coinbase initially sought the Coburn and Enigma MPC documents: to comprehend the legal perspective that underpins the SEC’s enforcement campaign against the digital-asset industry. Stonewalling by the SEC constitutes a violation of its FOIA obligations”.
Arguments in FDIC lawsuit
Coinbase Exchange disclosed that History Associates had requested information regarding the FDIC’s “pause letters” in the lawsuit against the agency. These letters were distributed by the Federal Deposit Insurance Corporation (FDIC) between March 2022 and May 2023. These letters urged financial institutions to cease their expansion into crypto-related activities and to furnish supplementary information.
The FDIC’s Office of Inspector General, responsible for evaluating the agency, reported that the FDIC needed to specify a timeframe for assessing this information. This resulted in institutions being exposed to risk and uncertainty. Thus, Coinbase maintains that these “pause letters” were not a sincere endeavor to regulate crypto activities but rather a strategy to cease them entirely as part of “Operation Choke Point 2.0.”
The complaint alleges that “The Pause Letters were not a good-faith effort to supervise the crypto-related activities of financial institutions.” Their actions were a transparent attempt to halt those activities entirely, and they were a component of the FDIC’s and other regulators’ plan to deprive digital-asset firms of essential banking services.
History Associates requested copies of all the “pause letters” referenced in the OIG report; however, the FDIC denied the request. The agency contended that disclosing the letters would “necessarily reveal information about the particular banks the letters were sent to and would intrude into the communications between financial institutions and their regulator.”