Coinbase’s closing brief in the Third Circuit challenges the US SEC’s denial of the CEX’s Web3 regulation petition.
Coinbase, a prominent cryptocurrency exchange, has filed its closing brief in a legal action challenging the Securities and Exchange Commission (SEC).
The legal dispute revolves around the SEC’s rejection of Coinbase’s rulemaking petition, which the exchange contends is critical to the digital asset sector.
Furthermore, the brief emphasizes the regulatory agency’s change in position concerning cryptocurrencies.
Contents Of Coinbase’s Closing Brief
A solitary, contentious sentence in the SEC’s denial forms the basis of Coinbase’s argument.
The SEC’s order “disagree[d]” with Coinbase’s concerns regarding the feasibility of existing SEC regulations for digital asset companies.
Coinbase asserts that this dispute is the result of irrational decision-making.
“The SEC’s order must be vacated on this elementary ground alone,” Coinbase’s chief legal officer, Paul Grewal, wrote.
As detailed in Coinbase’s brief, the SEC has exhibited a concerning pattern of conduct.
Based on an expansive interpretation of its authority, the SEC has demanded compliance from digital asset firms but has refused to establish explicit rules to facilitate such compliance.
Conversely, the SEC has initiated substantial legal proceedings against corporations for non-compliance with ambiguous regulations.
“This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it,” the brief asserts.
Moreover, Grewal elaborates further on the regulatory agency’s position’s broader ramifications.
In addition, the SEC asserts that it is not required to facilitate industry compliance.
“The SEC apparently views its rules not as tools to enable compliance with federal statutes, but as weapons to dismantle industries it disfavors,” the closing brief states.
Furthermore, the agency defends its position by citing its extensive enforcement activities as evidence that the current regulations are effective.
In addition, Coinbase disputes this, arguing that these enforcement actions are a trivial component of a larger plan to destroy the digital asset industry.
“They are a bludgeon—by design,” Coinbase argues.
Additionally, the brief discusses the SEC’s inconsistent approach to digital assets throughout the years.
Shift In SEC Chair Gary Gensler’s Stance
SEC Chair Gary Gensler’s views have evolved from recognizing the absence of a defined legal framework for crypto exchanges in 2021 to demanding broad regulatory authority a year later.
Moreover, without disclosing that its business model contravened securities laws, the SEC permitted Coinbase to go public in 2020.
Presently, the SEC has initiated legal proceedings against Coinbase, alleging that the business above practices are fraudulent.
Furthermore, the crypto exchange underscores the pervasive atmosphere of perplexity and unpredictability that has resulted from the SEC’s fluctuating stances and inconsistent enforcement measures.
For instance, while Bitcoin and Ether are not considered securities, the SEC has not clarified why other digital assets are treated differently.
The selective focus of SEC enforcement actions on tokens serves as an illustration of this inconsistency.
Another source of contention is the SEC’s reliance on its ambiguous “facts and circumstances” standard to determine whether digital assets qualify as securities.
Coinbase contends that this standard lacks clarity and is overly conceptual.
“The SEC has never coherently explained why the facts and circumstances underlying Bitcoin and Ether lead to a different result than the facts and circumstances underlying the tokens it has claimed are securities,” the CEX states.
Furthermore, Coinbase emphasizes that rulemaking serves as a suitable mechanism to tackle these concerns.
The rulemaking process would necessitate that the SEC establish a well-defined rationale for its regulatory approach, allow for public feedback on it, and guarantee judicial review before enforcement.
This procedure would furnish the digital asset industry with essential transparency and impartiality.
Coinbase’s closing brief emphasizes the critical nature of judicial intervention.
Further, the company requests that the court order rulemaking and not merely vacate the SEC’s order.
The brief concludes, “Only a court order directing [the SEC] to commence rulemaking will end its caprice.”