In a turn of events, the SEC was caught in the line of questioning in the Third Circuit Court of Appeals. Coinbase got the chance to present its demand from the SEC to write down clear rules for cryptos. The Chief Legal Officer of Coinbase, Paul Grewal in his X post shared details of the hearing.
He stated that despite asking the SEC to make crypto regulations multiple times, the commission has been ignorant towards it. The crypto exchange requested the court for an “extraordinary remedy”.
The agency has been declining the need for regulations for cryptocurrencies. Yet, they take enforcement action against companies for failing to register. When there is no regulatory body or regulations, with whom the crypto companies should register with?
Paul also talked about the petition that Coinbase has filed to the SEC in 2022. The petition requested the agency to propose and create rules for the regulation of digital assets. It will also help to identify which digital assets are securities and which are not. This way not all crypto firms will have to bear the wrath of enforcement actions and hefty penalties.
In response to the petition by Coinbase the SEC released a statement from the chair Gary Gensler denying the request of rulemaking for crypto space. Gary stated there are three reasons why he believes denying the petition was the right decision. First, existing laws and regulations already apply to the crypto securities market. Second, the SEC addresses the crypto market through rulemaking. Lastly, he emphasized that the Commission needs discretion to set its own rulemaking priorities. Even though the SEC has failed to prove crypto as securities, yet they kept charging various crypto firms.
Eugene Scalia, the counsel for Coinbase argues stating there is no system in place to register a crypto business with the Commission, yet the agency keeps taking enforcement actions against companies for failing to register. He added that the SEC acts like there are already set rules but there are not. The Commission demands registration but they have no answers for the above questions, and just talk random things.
When asked what Coinbase wanted from the court, Scalia requested an order for the SEC to start creating rules. When the court questioned the SEC’s counsel for clarification, he was unable to provide clear answers. But he argued that it is not uncommon to forbid companies to set their business in non-compliant ways. He further stated that it is not the job of the SEC, or any agency, to act based on the wishes of applicants.
Even though the court acknowledged that the commission does not have to provide justifications for its decision to deny rulemaking however, there is an argument that’s almost hokey. The SEC could not even provide clear information regarding the biggest crypto currency Bitcoin and Ethereum.
It would be interesting to see how this comes up in the future, however it is clear that slowly the SEC has to answer questions related to its stance towards the crypto sector. The commission has taken a lot of actions according to their will without providing clear guidelines, now they have to be careful.
