Lawrence Damilola
It appears that the U.S. Court of Appeals for the Third Circuit is not sold on the Securities and Exchange Commission’s (SEC) decision to deny Coinbase’s request for crypto rulemaking.
Coinbase filed a petition in July 2022 asking the SEC to establish rules to govern securities traded through digital methods. The SEC denied the request in late 2023, leading Coinbase to ask the court to compel the regulator to provide a more detailed response.
Judges Criticize Lack of Explanation on Coinbase Decision
During the hearing on Monday, Judge Thomas Ambro criticized the SEC’s limited reasoning for denying Coinbase’s petition. “There’s an argument here that this is pretty darn close to vacuous,” Ambro remarked, according to a report from Law360. He acknowledged that the SEC is not required to provide extensive reasoning but emphasized that the denial should include more substance. Ambro added, “I don’t really understand why you’re denying rulemaking, even though I realize you don’t have to give a whole lot.”
Coinbase’s legal counsel, Eugene Scalia, argued that the SEC’s two-page denial was arbitrary and insufficient, especially given the ongoing enforcement actions against crypto firms.
“The commission provided zero explanation for rejecting Coinbase’s demonstration that the current SEC rules make it unworkable for digital asset companies to register with the SEC and for digital assets to function as designed,” Scalia told the panel.
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Judges Point to SEC’s Focus on Enforcement
The court also questioned the SEC’s focus on enforcement actions rather than providing clear guidance for the crypto industry. Judge Stephanos Bibas noted that the SEC had pursued multiple enforcement cases against crypto companies. “So it’s not that the agency isn’t interested in the area; it’s just interested in picking off wrongs without giving higher-level guidance,” he said. Bibas also commented, “I would get it if this were the first or the second enforcement action, but we’re way down the road here.”
Coinbase’s Chief Legal Officer Paul Grewal expressed his frustration with the SEC’s approach in a post on X, saying, “The SEC refuses to provide a reasonable explanation for its barebones denial, yet it has wielded its purported authority to engage in an arbitrary enforcement campaign against our industry.”
Today @coinbase made oral arguments before the Third Circuit in our case against @SECgov’s repeated arbitrary and capricious denial of our petition for rulemaking, which we originally put forward over 2 years ago. Here’s the original petition: https://t.co/k0n2wwaBU9 1/5
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— paulgrewal.eth (@iampaulgrewal) September 23, 2024
The SEC defended its position, explaining that other priorities and ongoing efforts influenced its decision not to engage in rulemaking at this time. In June 2023, the SEC charged Coinbase with operating as an unregistered securities exchange, broker, and clearing agency.
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LAWRENCE
Lawrence is a cryptocurrency journalist covering blockchain developments and digital assets.
