- The SEC has a week to confirm whether its legal action against Coinbase represents an answer to Coinbase’s 2022 petition
- Coinbase asked the SEC to confirm whether it plans to regulate the crypto sector, and the SEC has failed to confirm either way
- A judge has now asked if the action represents a ‘no’
The Securities and Exchange Commission (SEC) has been given a week to respond to Coinbase’s demand for clarity over its rulemaking petition, following the agency’s legal action against the exchange this week. The judge noted that the SEC’s refusal to confirm or deny whether it plans to regulate cryptocurrencies independently was at odds with its decision to sue Coinbase over the sale of unregistered securities and set the Commission a seven-day deadline to state whether this action represented an answer to the central question contained in Coinbases’ 2022 petition.
“Resounding Maybe” Looks Like a No
The issue dates back to a July 2022 petition that Coinbase filed with the SEC, demanding to know if it planned to regulate cryptocurrencies and, if so, how. The SEC ignored the request, leading to Coinbase asking a court in April to force them to provide an answer, to which the court agreed. The SEC responded, in the words of Coinbase’s legal head Paul Grewal, with a “resounding maybe”, but the SEC’s action against it this week has led to Coinbase taking the matter further.
Coinbase argued that this wasn’t good enough and that the lack of clarity was harming its business, and yesterday the judge ruled in its favor, with this week’s action against Coinbase by the SEC playing an important part. The judge told the SEC to confirm whether the legal action represented a ‘no’ to the question of whether it plans to regulate cryptocurrencies separately, and if not how long it needed to offer a firm response. It also ruled that the SEC should explain why it shouldn’t grant Coinbase’s other demands, which include setting a deadline by which the SEC must say ‘yes’ or ‘no’.
Grewal informed the crypto community of the ruling via Twitter, saying that if the SEC says ‘no’, as all evidence suggests it will when pushed, then Coinbase has the “legal right to question that “no” in court”:
Earlier tonight the Third Circuit issued a short order in Coinbase’s mandamus action today. The court noted the SEC’s suit against us this morning and asked the SEC whether that means the SEC has decided to deny our pending petition for rulemaking. The SEC has 7 days to respond. pic.twitter.com/8QXXoHJ07Z
— paulgrewal.eth (@iampaulgrewal) June 7, 2023
One reason why the SEC might be hesitant to answer this question directly is that it could come back to bite them in its race to litigate every crypto company in existence, with defendants potentially able to show that the SEC is acting out of a desire to eradicate cryptocurrencies rather than safely regulate them, as is its mandate.
