Coinbase files lawsuit against SEC over denied petition
Coinbase claims that the SEC has arbitrarily and capriciously stifled crypto innovation in the US.
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The US Securities and Exchange Commission (SEC) recently declined a Petition for Rulemaking filed by Coinbase, the largest crypto exchange in the US. The petition had sought exemptions treating certain crypto assets as commodities rather than securities. In announcing the decision, SEC Chair Gary Gensler gave three critical reasons for the denial.
Firstly, Gensler emphasized that existing laws and regulations apply to crypto securities markets. Secondly, he pointed out that the SEC is currently soliciting comments on crypto-related rules, making the timing inappropriate for Coinbase’s proposed rulemaking. Lastly, he underscored the importance of preserving the Commission’s discretion in determining its rulemaking priorities.
In a recent statement, Gary Gensler, the chair of the US SEC, stated that the current laws and regulations governing securities markets also apply to crypto securities markets. He added:
“There is nothing about the crypto securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws. Congress could have said in 1933 or in 1934 that the securities laws applied only to stocks and bonds. Instead, Congress included a long list of 30-plus items in the definition of a security, including the term “investment contract.”
Gensler noted the broad definition of “securities” under existing laws encompassing various forms of investments. He pointed to the Supreme Court’s flexible Howey Test that defines securities as money investments in a joint enterprise with the expectation of profit derived from others’ efforts.
Coinbase’s Chief Legal Officer Paul Grewal challenged the SEC’s decision in Court in response to the news.
“Promise made, promise kept; we are now on file with Third Circuit to challenge the SEC’s arbitrary and capricious denial of our petition for crypto rulemaking. We again appreciate the Court’s consideration.”
Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam recently stated that assets such as Ether and Bitcoin are commodities. However, Gary Gensler thinks that the public invests in crypto with the expectation of profits.
Due to regulatory uncertainty, the turf war between regulatory agencies has discouraged some crypto firms from operating in the US. Investors and industry players seek quicker resolution and guidance to overcome these challenges.