The cryptocurrency exchange filed a petition for rulemaking with the SEC in July and was served a Wells notice for potential violations of securities law in March.
Coinbase has filed a reply in support of its petition for a writ of mandamus to the United States Securities and Exchange Commission (SEC) in its latest move seeking rulemaking from the SEC on digital assets. Coinbase chief legal officer Paul Grewal called the mandamus “the tailor-made remedy for the extraordinary facts.”
Coinbase filed a petition to the SEC in July “requesting that the Commission propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.” It provided 50 questions for the agency to consider in formulating rules.
The Coinbase filing on May 22 claimed that the agency has made a decision to reject Coinbase’s July petition but has not made that decision public. Furthermore, the SEC’s inaction is allegedly part of a larger pattern:
“The SEC does not dispute that since 2017 it has received five digital-asset-related rulemaking petitions and has acted on none.”
Coinbase and the SEC presented arguments concerning the appropriate response time for rulemaking, even with a mandamus writ. Coinbase argued in its new filing that its case was different from others:
“But the SEC has not cited, and Coinbase has not found, a single case in which a court has approved even a months-long delay when an agency was actively pursuing enforcement on the same topics of the rulemaking petition — let alone when the agency was threatening suit against the rulemaking petitioner itself.”
When it did not receive a response to the petition by April, Coinbase filed a writ of mandamus, a formal request that the agency be required to respond, in the U.S. Court of Appeals for the Third Circuit. The SEC could respond under the mandamus by rejecting the petition’s call to action. However, doing so would open it up to further legal action to compel rulemaking on digital assets.
Late last night Coinbase replied in the Third Circuit to the SEC’s arguments against our petition for a writ of mandamus. Mandamus is the tailor-made remedy for the extraordinary facts presented here. We continue to appreciate the Court’s consideration. https://t.co/OD02kX3524
— paulgrewal.eth (@iampaulgrewal) May 23, 2023
The SEC did not initially respond to the mandamus either. After a court ruling required it to do so, the SEC responded on May 15 with a brief calling for the court to deny the petition. It claimed that Coinbase’s request was unreasonable and that it could take years for the rulemaking.
However, SEC Chair Gary Gensler delivered a speech the same day and said in response to an audience question that “the rules have already been published” for the crypto market, referring to existing securities legislation.
Coinbase suggested that the SEC be required to respond to its July petition within seven days or explain the delay and set a deadline.
Coinbase received a Wells notice on March 22 indicating it was under threat of legal action from the SEC for “possible violations of securities laws.”