Crypto exchange Coinbase sues SEC over rulemaking petition

Coinbase has filed a petition to compel the U.S. Securities and Exchange Commission to respond to a months-old petition that asks whether the securities regulator would allow the industry to be regulated using existing SEC frameworks, the exchange firm said on Monday, escalating its tensions with the regulator that has ramped up enforcement actions and warnings against crypto firms, including the American giant.

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

“The rulemaking process exists so that agencies can develop regulation 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 echoing the request for clarity,” Coinbase chief legal officer Paul Grewal wrote in a blog post.

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

The petition, filed in the U.S. Court of Appeals for the Third Circuit on Monday, is the latest pushback the SEC has received in recent months as the regulator pushes actions against crypto firms Bittrex, Gemini, Genesis, as well as entrepreneurs including Justin Sun and Do Kwon.

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

Brian Armstrong, co-founder and chief executive of Coinbase, has said the exchange may consider moving its headquarters outside the U.S. unless the country changes its approach to regulation. “Anything is on the table including, you know, relocating 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 overdue for our industry. Yet 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,” Grewal wrote.