If there has ever been a tech versus the Feds showdown, it is now, in 2023, and the fighting duo is none other than the chairman of the SEC (Securities and Exchange Commission) and the CEO of Coinbase, Brian Armstrong.
The two heavyweights are going toe to toe in the courts, with SEC having sued Coinbase a number of times in the past year. And just this past week, Coinbase has finally decided to fight back (and with good reason).
SEC Sent Coinbase Notice of Investigation in March
The company later sued the SEC for failing to say what rules should be applied to the crypto sector and therefore respected.
Today, Coinbase’s chief legal officer, Paul Grewal, said the Third Circuit had issued an order directing the SEC to file a response to the 2022 petition within 10 days.
A firm and direct action from a company that has historically leaned into the federal government.
Let’s back up a bit to July last year when Coinbase sent a petition to the SEC asking what rules should be adopted to regulate securities offered and traded through “digital native methods.” Once again, a reasonable request from Coinbase on behalf of the entire crypto community.
The SEC never responded, leaving the exchange to continue operating without any certainty as to what specific rules it would have to comply with.
For this reason, after receiving notice of the investigation, the company decided to sue the agency for failing to respond to its petition.
US Court of Appeals Sides with Coinbase
Now the US Court of Appeals for the Third Circuit has ruled in Coinbase’s favor, ordering the SEC to provide an answer to the exchange‘s legitimate question.
Now the security question is being brought up repeatedly, so let’s address it.
The fundamental issue from which such problems arise is the nature of cryptocurrencies and the like.
While there are no particular problems with those considered commodities, such as Bitcoin, there are some unresolved issues with those considered securities.
In particular, US law, like many other countries, allows the sale of securities only if they have been registered (and therefore approved) by the authority overseeing the financial markets. This is the Securities and Exchange Commission (SEC) in the US.
The Third Circuit just issued a text-only order directing the SEC to file a response to our mandamus petition within 10 days (and gave us 7 days for a reply). Here’s the text of the order: TEXT ONLY ORDER (Clerk) At the direction of the Court, the Respondent is ordered to file an answer to the petition for writ of mandamus within 10 days of the date of this order. The petitioner may file a reply to the response within 7 days of the date of filing of the response. (KAG)
Why is the SEC Not Answering?
The SEC is, therefore, the authority that must intervene in such cases, so it is not clear why it has refused to respond to Coinbase. With this in mind, it is easy to understand the court’s decision to order the agency to answer the exchange’s legitimate questions.
If the answer is that the same rules that apply to traditional markets must be applied, then all cryptocurrencies that are declared to be unregistered securities should be removed from the market.
To date, there are no first or second-tier cryptocurrencies reported to be registered with the SEC as securities, so there is a risk that any that are deemed to be would have to be temporarily delisted.
Furthermore, it is difficult to imagine that the SEC would accept the registration of many cryptocurrencies as securities, so in many cases, delisting could be permanent.
So the battle continues onward, and from the looks of it, it doesn’t look like it’s ending anytime soon.