SEC Pushes Back Against Coinbase’s Request For Regulatory Clarity

Crypto advocates’ efforts to obtain clear guidelines around US digital asset regulations hit another roadblock on Monday.

The latest wrinkle in the saga is a response from the SEC to a mandamus petition that Coinbase filed last month. A mandamus is a legal remedy from a court that compels someone, typically a government agency, to fulfill their obligations under the law.

“That Coinbase would like its policy preferences addressed immediately does not entitle it to extraordinary relief ordering the Commission to act on a rulemaking petition that has been pending for well under a year,” the filing concludes.

Coinbase filed the mandamus in April “alleging unreasonable agency delay” regarding the firm’s previous petition for rulemaking, which it filed in July 2022. Coinbase’s petition requested clarity around digital assets’ categorization as securities, which is the pivotal dispute between the industry and the SEC.

“The SEC's response is just the latest instance of them punting rather than engaging,” Amanda Tuminelli, Chief Legal Officer at advocacy group DeFi Education Fund, told The Defiant. “Their position essentially boils down to ‘we don't want to engage in clear rulemaking, and we think regulation by enforcement is working just fine in the meantime, thank you.’”

Regulation by Enforcement

The SEC also signalled that it aims to continue to pursue enforcement action against digital asset companies and projects, rather than clarify rules around them. “The Commission can – and often does – enforce existing legal requirements while also considering further amendments to those requirements,” it said.

Those looking for regulatory clarity around digital assets may have to wait a while.

The SEC cites a previous case in which the Court of Appeals for the Third Circuit, where the current case is being heard, “found no undue delay where mandamus was sought five years after a petition was filed.”

Tuminelli takes issue with the SEC’s framing. “The SEC's argument that the court should not put it on a timeline and that it has acted reasonably in not responding to Coinbase's petition because it was only filed a year ago, ignores the many requests for clear rulemaking that have been repeated by Coinbase and the industry for years prior,” she said.

Some crypto skeptics welcomed the news.

“The SEC conducts a masterclass on securities regulation and legal brief composition in a response that will out assuredly result in Coinbase being thrown out of court forthwith,” wrote John Reed Stark, a well-known cybersecurity expert and lawyer.

The SEC’s response comes after the U.S. Chamber of Commerce, the largest business advocacy group in America, filed an amicus brief in support of Coinbase’s mandamus petition last week. The brief alleged that the SEC’s delay in addressing Coinbase’s petition for rulemaking was causing economic harm as well as violating federal law.

Stifling Innovation

Tyler Badgley, senior counsel of the U.S. Chamber Litigation Center, and lead attorney on the case, was unequivocal in a follow-up email. “The Chamber has long argued that regulatory uncertainty chills economic growth and innovation,” he said.

“The SEC’s refusal to act, relying instead on regulation through enforcement, causes significant economic harm, deprives the public of any opportunity to comment, and bypasses the critical regulatory checks of the Administrative Procedure Act.”

Paradigm, a major venture capital firm, also filed an amicus brief in support of Coinbase’s mandamus.

William Mougayar, ex-chair of the Kin Foundation who engaged with the SEC when they sued Kik Inc. in 2019 for selling unregistered securities, sees a simple dynamic beneath the legal battle.

“Pertaining to Coinbase’s situation, basically [the SEC is] saying ‘no’ to innovation,” he told The Defiant. “Gary Gensler is the villain of crypto.”