Today Coinbase in federal court to compel the SEC to respond yes or no to our July 2022 asking the SEC to use its formal rulemaking process to provide guidance for the crypto industry. The rulemaking process exists so that agencies can develop regulation with the benefit of public input, and have their position tested through judicial review. To date, more than 1,700 entities and individuals have submitted comments to Coinbase’s petition echoing the request for clarity.
The (“the APA”) requires the SEC to respond to Coinbase’s rulemaking petition “within a reasonable time.” If the SEC says no to our rulemaking petition, which it has the right to do, then Coinbase would be allowed to challenge that decision in court and explain in that formal setting why rulemaking is required. So it’s important for the SEC and any other agency petitioned for rulemaking to respond to the petition once the agency has made up its mind, especially if the answer is no – otherwise the public can never exercise its right to ask a court if the agency’s decision was proper.
From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision. This step may feel unusual, and it is, because this step is usually not needed. But it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public. Again, Coinbase is not asking the Court to instruct the agency how to respond. We are simply requesting that the Court order the SEC to respond at all, which they are legally obligated to do.
Coinbase does not take any litigation lightly, especially when it relates to one of our regulators. Regulatory clarity is overdue for our industry. Yet Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business. The rulemaking process is a critical step to giving the public notice about what activities they can and cannot engage in. So until the crypto industry gets that clarity, we will continue to take every step available to us to seek it, which includes today’s filing. We also remain available to the SEC and all of our regulators for dialogue any time on these issues.
At Coinbase, we believe crypto and blockchain technology have the ability to increase economic freedom and opportunity around the world. That’s why we’re working hard to help update the financial system by building trusted products that expand the utility and adoption of crypto. Coinbase decided to become a public company in the US because we believe America is well suited to lead the technological transformation enabled by blockchain technology. But government leaders and regulators at the federal level have adopted a disjointed, regulation-by-enforcement approach that has the potential to negatively impact American competitiveness and national security.
We believe we have an obligation to our industry, our customers, our shareholders, and our employees to leave no stone unturned when it comes to seeking regulatory clarity in the US. The action Coinbase filed today is a small but important part of our multi-year, continual plea to leaders in Washington for clear rules of the road. We recognize that rules are needed. We’ve asked for rules to be developed. Our decision to move forward with today’s legal challenge is our attempt to compel basic rulemaking. It shouldn’t have come this – but it has, and we will see it through to its conclusion.
About Paul Grewal
Paul Grewal is the Chief Legal Officer of Coinbase where he is responsible for Coinbase’s legal, compliance, global intelligence, risk management and government relations groups. Before joining Coinbase, Paul was Vice President and Deputy General Counsel at Facebook. Prior to Facebook, Paul served as United States Magistrate Judge for the Northern District of California. Paul was previously a partner at Howrey LLP, where his practice focused on intellectual property litigation. Paul served as a law clerk to Federal Circuit Judge Arthur J. Gajarsa and United States District Judge Sam H. Bell. He received his JD from the University of Chicago Law School and his BS in Civil and Environmental Engineering from the Massachusetts Institute of Technology.
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