Coinbase Challenges SEC Over Crypto Rules
Coinbase tells federal appeals court SEC has made it impossible to operate compliant crypto business and should create new framework
Coinbase, the largest US crypto exchange, challenged the US Securities Exchange Commission in an appeals court on Monday as part of an ongoing effort to force the SEC to stop applying existing securities laws to cryptocurrencies and instead create new rules.
The company told a three-judge federal appeals court in Philadelphia that the SEC had made it impossible for the firm to operate while complying with US regulations.
It said the regulator had been arbitrary and capricious in not giving Coinbase more information on how to register with the agency and comply with US laws.
A lawyer for the SEC responded that the commission is not required to create a new rule for the crypto sector and that existing regulations are sufficient.
Court challenge
“If Coinbase wants to arrange its business in a way that does not comply with the existing regulatory framework, that does not establish a right to have the framework adapted to meet their business,” said SEC lawyer Ezekiel Hill, according to a Reuters report.
The judges heard arguments from both sides and noted that the SEC has discretion in rulemaking priorities but also pressed the commission on why it was not focusing on cryptocurrency.
Coinbase sued the SEC last year to compel it to act on a petition for rulemaking the company filed in 2022, in which it asked for clarity on conditions under which a digital asset is classed as a security and urged the commission to create a crypto-compatible market structure framework.
The SEC denied the petition in December 2023, saying it disagreed current regulations were “unworkable” for crypto.
Monday’s appeal seeks to overturn the denial.
The SEC has filed lawsuits against numerous crypto companies, including Coinbase, market leader Binance and others, saying digital assets are classed as securities in most cases and subject to its remit, and that companies that trade such assets without registering with it are acting illegally.
Securities allegations
Coinbase is fighting those allegations in a separate case in the US District Court for the Southern District of New York.
Earlier this year the company partially won a motion for discovery in that case, obliging the SEC to produce documents related to its application of securities laws to crypto tokens.
In an 18 September filing the SEC asked for a four-month extension to produce the “hundreds of thousands of documents” involved.
The agency said it needed until 18 February to complete fact discovery instead of 18 October, as initially scheduled.
“The SEC is undertaking a review of at least 133,582 unique documents,” the SEC said in the filing.
“The requested extension will provide the SEC the necessary time to comply with the Court’s Order.”
The revised timeline would push a possible jury trial into 2025, giving a deadline of 22 April for expert discovery, including depositions and related documents.
