SEC Defends Crypto Enforcement Strategy in Court Filing

The SEC rejects Coinbase’s demand for clear rules for digital assets and insists on its right to regulate crypto through individual cases.

The U.S. Securities and Exchange Commission (SEC) defended its crypto enforcement strategy in a court filing on Monday, rejecting Coinbase's demand for clear rules for digital assets and insisting on its right to regulate crypto through individual cases.

The SEC's position drew criticism from Coinbase and other crypto industry players, who argued that the agency has failed to provide adequate guidance to legitimate crypto businesses that want to comply with U.S. laws. “This industry is moving forward globally whether the SEC likes it or not,” said Kayvan Sadeghi of Jenner & Block, who represents the Crypto Council for Innovation. U.S. regulators, he told Reuters, “don't have the option not to decide what to do.”

Coinbase initiated the legal action last month, anticipating an imminent lawsuit from the SEC over its planned lending product. Coinbase asked the 3rd U.S. Circuit Court of Appeals to force the SEC to respond to its petition from July 2022, which urged the agency to “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods.” Coinbase claimed that the SEC was deliberately delaying its response and avoiding judicial review of its decision to rely on enforcement actions rather than formal rulemaking. Coinbase's arguments were supported by several amici curiae, including the Crypto Council for Innovation, Paradigm Operations LP, Investor Choice Advocates Network and the U.S. Chamber of Commerce, who all warned that the SEC's inaction was stifling innovation in a trillion-dollar industry.

The SEC has responded to Coinbase’s case by stating that the agency has not secretly “vetoed” Coinbase’s petition. Instead, the SEC is engaged in a careful analysis of potential crypto regulation, including a handful of just-proposed new rules. The SEC also refuted arguments that it should not bring enforcement actions until it has clarified which crypto assets it considers to be securities. The agency said its mandate is to enforce existing securities laws even as it considers additional rules and regulations. Coinbase may not like the SEC’s deliberate process, but that does not mean Coinbase and its crypto friends can shove their way to the front of the line of SEC priorities.

On Monday, Paul Grewal, the chief legal officer of Coinbase, responded to the SEC through a series of tweets, asserting that the SEC’s brief only confirmed Coinbase’s fear that it may take years to achieve regulatory clarity.