US Judges Ask SEC to ‘Explain Itself’ for Rebuffing Coinbase Call for Crypto Rules
The US Securities and Exchange Commission must now thoroughly “explain itself” for refusing to grant Coinbase’s formal request. that the agency will write regulations for how the industry should assess whether crypto assets are securities or not, according to a circuit-court decision on Monday.
A three-judge panel for the US Court of Appeals for the Third Circuit, in a legal rebuke of the securities regulator, partially sided with The Coinbase effort to get the agency to offer legal clarity by writing crypto regulations.
“Rather than compel the agency to make a rule, we order it to explain its decision not to,” one of the judges wrote. “In fact, a rule may not prove necessary to resolve the notice problems here; the agency may simply state its position on crypto assets without hesitation.”
Judge Stephanos Bibas added caution to the SEC: “This should not give another weak explanation in a long line of them.”
The legal blow for the agency — the second setback in a case related to Coinbase in less than a week — could leave an opening for its new leadership. Chair Gary Gensler, the architect of the SEC’s crypto enforcement-heavy approach in recent years, stepped down as President-elect Donald Trump was sworn in on January 20. Trump’s chosen replacement, former Commissioner Paul Atkins, may get a chance to use it asked the court to answer that, yes, his agency will change its course in handling crypto.
Or, even sooner, an acting chairman like sitting Commissioner Mark Uyeda, one of the agency’s two current Republican members, could be in a position to get that ball rolling while Atkins awaits the Senate confirmation process. .
Monday’s ruling called the SEC’s crypto actions “arbitrary and capricious,” echoing language from the DC Circuit Court of Appeals when it rejected the agency’s opposition in Grayscale’s application for a spot bitcoin (BTC) exchange-traded fund (ETF).
“Because we believe the SEC’s order is conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition in part and remand to the SEC for a more complete explanation,” the judges ruled. judge in this case. However, the circuit court did not believe that Coinbase’s arguments justified a clear need to seek new rules from the regulator.
“We are reviewing the decision and will determine next steps as appropriate,” a spokeswoman for the SEC said in response to a request for comment.
“We appreciate the court’s careful consideration,” said Coinbase Chief Legal Officer Paul Grewal, in a posting on social-media site X. His company’s pursuit of this SEC petition is one of several court battles Coinbase has waged against the agency, including its defense against an SEC enforcement action. Last week, a federal court granted the exchange’s effort to expedite a key legal question in that case to an appeals court.
Read more: Coinbase Makes Major Progress in Gensler’s SEC Court Fight
Although the partial ruling against the SEC was compelling, one of the judges added his more rosy view of the agency’s performance in this case.
“If the SEC were to promulgate a rule banning crypto assets, it would certainly face legal challenges,” Judge Bibas said. “One might wonder if an agency whose mission is to maintain fair, orderly, and efficient markets is allowed to ban an emerging technology. … So the SEC has avoided the rulemaking process in by upholding de facto prohibition by enforcement instead.”
