In a recent development, Coinbase, the largest cryptocurrency exchange in the United States, has initiated a legal offensive against the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC).
The lawsuits, filed in a Washington, D.C., district court, aim to secure access to internal records that would shed light on what Coinbase describes as a “deliberate and concerted effort” by regulatory agencies to pressure banks into denying crypto firms access to the federal banking system.
Coinbase Challenges SEC And FDIC
Coinbase insists that financial regulators, including the SEC, FDIC, and Federal Reserve Board, have long sought to hinder the digital asset industry. The exchange seeks transparency from the federal government, demanding clarity on the regulatory landscape surrounding cryptocurrencies.
Coinbase’s legal action follows its previous attempts to obtain information through the Freedom of Information Act (FOIA) regarding three SEC investigations into crypto firms and entrepreneurs between 2018 and 2024, including the recently concluded probe into the Ethereum blockchain network.
By obtaining the requested information, the exchange hopes to understand better the SEC’s evolving stance on digital assets over the years.
The company also seeks details on “pause letters” sent by the FDIC to select banks between March 2022 and May 2023, which requested a temporary halt to any crypto-related activities until further guidance on associated risks could be provided.
Following a report by the FDIC’s Office of the Inspector General, these letters came to light, which outlined the agency’s strategies for addressing cryptocurrency risks. Despite being legally entitled to the requested information under the FOIA, Coinbase claims that both the SEC and FDIC denied access.
This lawsuit against the SEC marks the second time this month that the agency has faced legal action for non-compliance with FOIA requests. The American Securities Association sued the SEC on June 6 to obtain documents related to investigations into record-keeping practices at major Wall Street firms.
Regulatory Obstacles
Coinbase alleges that the SEC and FDIC have cited similar grounds for denying access to requested information, including concerns that disclosure may compromise ongoing investigations and enforcement actions against other entities.
The exchange specifically refers to “Operation Chokepoint 2.0,” a term used within the crypto industry to describe what they perceive as a “coordinated effort” by financial regulators to restrict or deny crypto firms access to banking services, similar to the original “Operation Chokepoint” initiative in 2013.
The lawsuits filed by Coinbase aim to uncover whether top leadership at the SEC and FDIC have employed coordinated pressure tactics to stifle the $2 trillion digital assets industry’s access to the federal banking system.
The exchange contends that the lack of consistent guidance from the SEC on applying securities laws to digital assets is detrimental to industry participants.
Although Coinbase hopes these lawsuits will provide insights into the SEC’s enforcement action against the exchange, which is currently being prosecuted in a New York federal court, it may face delays in obtaining the sought-after information.
The Government Accountability Office recently reported a significant backlog of FOIA requests attributed to the increasing volume and complexity of information sought by individuals and companies in recent years.
As Coinbase continues its legal battle, the crypto industry will closely watch the outcome of these lawsuits, as they could potentially impact the regulatory landscape and contribute to greater transparency surrounding crypto regulations and their application.
Featured image from DALL-E, chart from TradingView.com
