Crypto Exchange Coinbase Sues SEC for Rulemaking Petition

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Coinbase has filed a motion to compel the US Securities and Exchange Commission to respond to a months-old petition asking whether the securities regulator will allow the industry to be regulated using existing SEC frameworks, the exchange firm said Monday, escalating tensions with the regulator that has stepped up enforcement actions and warnings against crypto firms, including the US giant.

In the July 2022 filing, Coinbase asked whether the SEC would “propose and adopt rules to govern the regulation of securities offered and traded via digitally native methods.” The SEC never responded to the petition.

“The regulatory process exists so that agencies can develop regulations with the benefit of public input, and have their position tested through judicial review. To date, more than 1,700 entities and individuals have submitted comments to Coinbase’s petition reflecting the request for clarity,” Coinbase legal director Paul Grewal wrote in a blog post.

Grewal claimed that from the SEC’s public statements and enforcement activity in the crypto industry, it appears that the regulator has already decided to deny Coinbase’s petition, “but they haven’t told the public yet.”

The petition, filed in the US Court of Appeals for the Third Circuit on Monday, is the latest setback the SEC has received in recent months as the regulator pushes for action against crypto firms Bittrex, Gemini, Genesis, as well as founders including Justin Sun and Gjør Kwon.

Last month, the SEC threatened to sue Coinbase over some of the exchange’s products. Coinbase is the gold standard among crypto exchanges for compliance with the laws, but the American firm has suffered over the years because it could not develop and roll out new products due to legal uncertainty, even as its rivals scaled in international markets.

Brian Armstrong, co-founder and CEO of Coinbase, has said that the exchange may consider moving its headquarters outside the US unless the country changes its approach to regulation. “Everything is on the table, including, you know, relocation or whatever is necessary,” he said last week.

“Coinbase does not take any litigation lightly, especially when it relates to one of our regulators. Regulatory clarity is required for our industry. Nevertheless, Coinbase and other crypto companies face potential regulatory enforcement actions from the SEC, although we have not been told how the SEC believe the law applies to our business,” Grewal wrote.