Coinbase sued the Securities and Exchange Commission on Monday to force the agency to respond “within a reasonable time” to a rulemaking petition the crypto exchange submitted in July.
The July petition asked the SEC to propose and adopt rules that explain how securities laws cover digital assets such as cryptocurrencies. Further, Coinbase wants the SEC to hold a formal notice-and-comment process, giving companies and the public a say on its policies.
Coinbase’s petition garnered more than 1,700 comments from various entities over nine months but none from the SEC, the company said in a blog post.
Coinbase has long asked for clarity on the SEC’s thinking. CEO Brian Armstrong, as far back as September 2021, equated the SEC’s communication strategy to “sketchy behavior.”
“Regulation by litigation should be the last resort for the SEC, not the first,” Armstrong wrote. “If we end up in court, we may finally get the regulatory clarity the SEC refuses to provide.”
The September 2021 comment came after Coinbase disclosed the SEC planned to sue the company if it launched a product, Lend, that would have let customers earn an annual percentage yield by lending their holdings of a stablecoin to other users.
“The SEC told us they consider Lend to involve a security but wouldn’t say why or how they’d reached that conclusion,” Coinbase’s chief legal officer, Paul Grewal, wrote at the time, adding that the regulator “would rather … go right to litigation.”
“Mystery and ambiguity only serve to unnecessarily stifle new products that customers want and that Coinbase and others can safely deliver,” Grewal wrote.
Coinbase scrapped Lend but, in subsequent weeks, published a policy document pushing for digital assets to be regulated by a new agency.
The SEC’s enforcement actions have appeared to accelerate in recent months, with charges leveled against Gemini and Genesis in January and a settlement with Kraken in February in which the company agreed to end its staking service.
Coinbase reportedly submitted a comment to the SEC in March asking for more clarity on how the agency views staking services — only to receive a notice that the SEC intended to sue Coinbase over its own staking products, Bloomberg reported.
“Not only have we been waiting for many, many months [for the SEC to respond to the July petition], but there’s been a campaign of enforcement that the SEC has embarked upon in parallel,” Grewal told Bloomberg on Monday.
“Coinbase is not asking the Court to instruct the agency how to respond,” Grewal wrote in Monday’s blog post. “We are simply requesting that the Court order the SEC to respond at all.”
The SEC declined to comment to CNBC regarding the Coinbase lawsuit.
Grewal said Monday’s legal action against the SEC “may feel unusual.”
“But it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public,” Grewal wrote.
From the SEC’s public statements and record of enforcement activity, “it seems like the SEC has already made up its mind to deny our petition,” Grewal wrote.
The lawsuit, Grewal said, “simply asks the court to ask the SEC to share its decision.”
If the SEC denies Coinbase’s petition, the company can challenge that decision in court. But by not responding, the SEC “is depriving the third branch — the U.S. courts — from a chance to exercise their authority to evaluate whether [the agency] got it right or … wrong,” Grewal told Bloomberg.