Mar 19, 2024 - Economy

Coinbase in multifront court battle with SEC

Illustration of the SEC seal's shadow looming over a pixelated coin.

Illustration: Maura Losch/Axios

Coinbase is locked in a multifront battle with the SEC and... the SEC.

The big picture: In one courtroom, the U.S.'s biggest crypto exchange is defending against allegations that it violated securities rules. In another, it's arguing that it's the securities regulator that's run amok of the law.

Between the lines: Coinbase is asking the court to instruct the country's top financial regulator to write rules for the digital asset industry after the SEC denied the company's earlier petition to do so.

The lack of clear rules, according to one amicus brief filed in support of the case, has been "an unworkable regulatory blackhole, which fails to provide a viable path to compliance for the digital assets industry."

  • Clear rules, and the resulting reasonable chance to comply, is a principle called fair notice.

Zoom in: The SEC's history of regulating the industry by enforcement fails to provide fair notice, the company argues. By contrast, the SEC is an unfair, many-faced god that says one thing and then does another, according to Coinbase.

  • Its opening brief includes a chart of the regulator's conflicting statements over the years.
  • And a handful of amicus briefs in support of Coinbase, in addition to the one cited above from the Crypto Council for Innovation, were filed yesterday by industry groups like the Digital Chamber of Commerce, the Satoshi Action Fund and the Texas Blockchain Council.

If Coinbase prevails in its appeal in the Third Circuit based on the Administrative Procedures Act, that could bone up its fair notice defense against the SEC in the securities violations case, and help others' too.

  • Other crypto exchanges, including Binance and Kraken, are now putting up similar defenses.
  • If they lose the appeal, Coinbase will have another go defending its view through the other case.

Coinbase's argument in that one, before Judge Katherine Polk Failla, effectively says that the SEC hadn't set up clear guidelines saying what digital assets constituted securities and which weren't, before suing.

The other side: SEC chair Gary Gensler said in December that he was "pleased to support" the commission's decision to deny the rulemaking petition because 1) existing rules apply to crypto; 2) the SEC does address crypto markets through rulemaking; and 3) the agency should be able to set its own priorities.

  • John Reed Stark, former SEC enforcement lawyer and now consultant, says the fair notice argument is "plain foolish" because that defense was "resoundingly rejected" in LBRY, Ripple and Terra cases, he said.

What we're watching: The SEC asked for an extension to file its opposition briefing this morning. If granted, the agency's response would be due May 10.

Go deeper