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Coinbase announced Monday the filing of its opening brief with the U.S. Court of Appeals for the Third Circuit, an appeal that challenges the U.S. Securities Exchange and Commission (SEC) for its refusal to provide clear guidelines for crypto industry, as revealed by the Coinbase report. legal director, Paul Grewal, in a job on X.
Today @coinbase filed our opening brief with the Third Circuit challenging the SEC's denial of our rulemaking petition. Tl;dr: The SEC's refusal is arbitrary and capricious, an abuse of discretion, and a violation of the Administrative Procedure Act. 1/7
– paulgrewal.eth (@iampaulgrewal) March 11, 2024
In a Short dated March 11, 2024, Coinbase points out that the SEC has indicated that it has had limited or unclear statutory authority over digital assets for years. However, after a sudden policy reversal, where the SEC began treating most digital assets as securities, it began regulating the industry through enforcement rather than clear rulemaking.
According to Coinbase, the SEC's approach has unfairly put companies in a difficult position because they are now expected to comply with rules that are neither clear nor directly enforceable. The company argues that if the SEC believes it has authority over digital assets, it must formalize that position through rulemaking.
Coinbase also criticizes the SEC for ignoring its rulemaking request for 20 months and then rejecting it with minimal explanation, despite significant industry input. In December 2023, the SEC rejected a petition from Coinbase, seeking clarification on crypto governance regulations. The agency has not provided a satisfactory reason for its rejection decision. Coinbase argues that the denial demonstrates the SEC's arbitrary and oppressive enforcement campaign.
“This is arbitrary on its face and goes to the heart of the opaque and oppressive nature of the SEC’s enforcement campaign as a whole,” Coinbase pointed out.
“The SEC demands that the industry comply with unenforceable, unfit, and still-evolving requirements of securities law, or else join the many companies that now face enforcement action, including Coinbase. Yet the SEC refuses to take the necessary steps to establish stable standards, to show that it believes compliance with these irrelevant requirements is possible, and to provide a means to achieve this,” Coinbase added.
The latest legal decision is not directly related to the ongoing lawsuit between Coinbase and the SEC. The SEC filed a lawsuit against crypto exchange Coinbase in June last year, alleging that it violated US securities laws. The outcome of the case is expected to clarify the classification of certain crypto assets, which the SEC believes are securities and therefore should fall under its jurisdiction.
Further complicating the issue are various decisions made in previous legal battles between the SEC and other crypto companies, such as Ripple Labs and Terraform Labs.
The SEC sued Ripple Labs, the company behind XRP, alleging that the sale of XRP to institutions was an unregistered securities offering. In July last year, the court ruled that Ripple's direct sale was a security, but secondary exchange trading was not.
The SEC also sued Terraform Labs for offering four tokens as unregistered securities. However, the court sided with the SEC in this case.
Additionally, these cases focus on the initial issuance, while the Coinbase-SEC case focuses on whether trading tokens on these major exchanges constitutes a sale of securities.
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