Crypto Giant Coinbase Files Lawsuit Against SEC Over Regulatory Ambiguity

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Key takeaways:

  • Since its petition for regulations for the cryptocurrency business has been pending since July, Coinbase is attempting to compel the SEC to reply.
  • Coinbase has emphasized the need for rules numerous times. The entity feels that now is the perfect time for clarity.

In an effort to force the country’s securities regulator to respond “yes” or “no” to a petition that the exchange has had outstanding since July, Coinbase has launched a lawsuit in a federal court in the United States.

The Securities and Exchange Commission was petitioned to develop and implement more transparent regulatory standards for the American bitcoin market.

The exchange petitioned the financial regulator to respond to a total of 50 specific concerns about the regulation of particular digital assets. The inquiries cover a wide range of topics, and one of them asks the SEC to elaborate on its classification process for tokens as securities. 

It undoubtedly includes requesting clarification from the SEC on its classification of tokens as securities. The petition also describes the process for trading securities backed by crypto assets on SEC-regulated exchanges.

Coinbase said in a blog post that more than 1,700 organizations and people had commented on the exchange’s petition. The SEC must respond to Coinbase in accordance with the Administrative Procedure Act (APA) “within a reasonable time.” 

The discussion covers both situations. In the event that the SEC rejects the regulation petition, Coinbase may appeal the ruling in court. According to reports, the company will explain why rulemaking is essential to the judge. The blog article continues:

“So it’s important for the SEC and any other agency petitioned for rulemaking to respond to the petition once the agency has made up its mind, especially if the answer is no – otherwise, the public can never exercise its right to ask a court if the agency’s decision was proper.”

Grewal stressed the need for clarity on these issues, particularly in light of the Wells notification that Coinbase received on March 22 that suggests future enforcement actions against the cryptocurrency exchange. Grewal also said:

“Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business,” 

Coinbase has emphasized the need for rules numerous times. The entity feels that now is the perfect time for clarity. Furthermore, Ishan Wahi, a former product manager for Coinbase, and two other people were named in an insider trading complaint that claimed nine tokens provided on Coinbase were unregistered securities. This petition was submitted the same day the SEC made this claim.

On February 9, Kraken and the SEC agreed to a settlement for failing to register the offer and sale of their crypto-asset staking-as-a-service program, which the regulator believed was a program that should have been registered as a security under its purview. The exchange paid a $30 million fine and consented to stop operating its staking-as-a-service program for American customers. 

The SEC and the New York Department of Financial Services ordered Paxos, the company behind the U.S. dollar-pegged stablecoin Binance USD, to stop producing and distributing the token on February 12 of this year.

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