- The crypto regulatory climate in the US is pushing businesses abroad.
- The Coinbase lawsuit represents one of the most direct attempts to bring clarity to the industry.
- However, the US-based exchange faces an uphill task after the SEC filed a 'Writ of Mandamus.'
Coinbase, the largest cryptocurrency exchange in the United States, took the US Securities and Exchanges Commission (SEC) to court on allegations of a perceived lack of clarity around digital assets. The move came as the regulator upscaled its cryptocurrency enforcement in 2023 without shying off the industry-wide cry for regulatory clarity.
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Coinbase's request to the court receives massive support
Coinbase filed a petition in April with the Third Circuit of the US Court of Appeals for a "writ of mandamus" to the SEC. This Latin word is interpreted as "we command" and serves as a "court order instructing a lower court or government agency to perform a duty correctly."
Today the SEC responded to Coinbase’s petition for a writ of mandamus — asking the court to require the SEC to respond just yes or no to whether it will undertake rulemaking for our industry. The SEC’s answer? A resounding maybe. 1/7
— paulgrewal.eth (@iampaulgrewal) May 16, 2023
In the lawsuit between Coinbase and the regulator, the exchange wants the court to compel the SEC to respond to a July 2022 petition for cryptocurrency regulation. An excerpt from the filing reads:
The Administrative Procedure Act ("the APA") requires the SEC to respond to Coinbase's rulemaking petition 'within a reasonable time.' If the SEC says no to our rulemaking petition, which it has the right to do, then Coinbase would be allowed to challenge that decision in court and explain in that formal setting why rulemaking is required," Coinbase Chief Legal Officer Paul Grewal wrote in a company blog post announcing the lawsuit.
The request has enjoyed massive support from the broader crypto community and overboard, including the US Chamber of Commerce. Among the most influential business entities globally, the Chamber represents more than three million businesses.
More specifically, the Chamber announced its support for Coinbase in a May 9 court filing, presented as a friend of the court.' In the address, the organization attacked the SEC for its "harmful" and "unlawful" approach to crypto asset regulation, arguing that
The SEC's delayed response to Coinbase's petition stifled economic growth and innovation.
In retaliation, however, the financial markets regulator has contravened assertions made by Coinbase and its supporters, asking the court to throw out the case.
SEC wants Coinbase case thrown out of court
Undeterred by the US-based exchange's extensive support, the SEC has filed an application asking the court to throw out the case.
In a Monday, May 15 court filing, the SEC requested the court to turn down Coinbase's request and force it to respond to its July 2022 petition. In the submission, the regulator notes that the technical nature of the matter warrants more discussions and consultations.
Further, the regulator's legal representatives insist that Coinbase's assertions that the SEC had privately established an opinion on the petition were untrue. The regulator also articulated that the agency's participation in crypto enforcement actions did not eliminate the possibility of regulation, highlighting that it has suggested rules concerning crypto custody and exchange definition.
According to the regulator, the crypto enforcement actions inform its deliberation on whether or not crypto markets require a separate set of rules.
Potential impact of SEC filing on Coinbase case
According to former SEC Advisor J.W. Verret, an Associate Law Professor, the odds favor the agency less because its arguments were stronger and more because the writ of mandamus case is typically "very hard to win." Nevertheless, Verret believes the US-based exchange knew they were at a disadvantage long before the filing. In a statement, he said:
This attempt to get a mandamus to force rulemaking was always a long shot, and they [Coinbase] knew that. But what this is really about is that even if they lose this particular case, they get something from the SEC that helps them in their defense action.
Notwithstanding, Verret also believes that the arguments that would help the SEC win the writ of mandamus case against Coinbase will likely also shoot the regulator in the foot in the exchange's enforcement action.
"The SEC has claimed that, on the one hand, they have discretion to go as slow as they like on rulemaking because this is a very complicated subject matter. But, on the other hand, it's so simple that anybody should be able to register now,"
Based on Verret's assertions, the SEC's stance was internally inconsistent, adding, "It is hard for a judge to ignore that when you raise it as a defense,"
Based on statements from Coinbase Chief Legal Officer Paul Grewal, the exchange would be allowed to respond to the agency's filing next week.
We look forward to the opportunity to reply formally next week. And as always, we continue to appreciate the Court’s careful consideration. 7/7
— paulgrewal.eth (@iampaulgrewal) May 16, 2023
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