On Tuesday, Coinbase appealed for partial summary judgment in its action against the SEC in the United States District Court for the District of Columbia. The exchange is asking the court to order the SEC to reveal internal records, which Coinbase thinks are critical to understanding the agency’s stance on cryptocurrency regulation.
The legal team at Coinbase is keen to collect material that indicates how the SEC enforces cryptocurrency restrictions. The company argues that the SEC has routinely denied Coinbase access to these documents, which it sought under the Freedom of Information Act (FOIA). The SEC is now proposing a three-year delay before deciding whether to release the requested information, a timeline that Coinbase finds unacceptable.
The exchange’s lawsuit, which it filed in June, came after what Coinbase describes as a “failed FOIA request.” FOIA is a law that allows the public to access federal agency records, yet Coinbase asserts that the SEC and the Federal Deposit Insurance Corporation (FDIC) have withheld critical information about their positions on cryptocurrency.
Why These Documents Matter
The focus of Coinbase’s request is to access internal and external communications, especially those pertaining to the SEC’s investigations into the securities classification of Ethereum (ETH) and other digital assets. This is a serious problem since how Ethereum is classified might have far-reaching consequences for the whole cryptocurrency sector. A similar battle is taking place in the SEC’s case against Ripple, where the classification of XRP as a security has created widespread controversy.
Marc Fagel, a former SEC officer, recently hinted that the agency may file an appeal of a court decision concerning secondary transactions of XRP. This indicates that there is still much debate over whether different cryptocurrencies are securities, and Coinbase’s advocacy for openness is a component of a larger industry initiative to clarify these regulatory ambiguities.
SEC Faces Criticism for Delays
Coinbase’s annoyance with the SEC is not unique. The agency has faced criticism for postponing the publication of important records. The SEC has also been criticized for going too far in its regulatory activities, in addition to its crypto enforcement operations. The regulator accused Coinbase of offering goods without registering as an exchange in a separate action it launched against the business last year.
The ongoing dispute between Coinbase and the SEC reflects a larger struggle for regulatory clarity in the cryptocurrency space. Many crypto companies have been targeted by the SEC for operating without proper registration, leading to repeated enforcement actions by the agency.
The Fight Over FOIA Requests
Coinbase initially faced strong resistance from the SEC, which argued that it was exempt from FOIA requirements. The agency has admitted that its exemption might not be absolute, though, which might open the door for partial disclosure of documents. Even with this compromise, the SEC insists it will take three years to examine and perhaps publish the requested papers.
The consulting firm hired by Coinbase, History Associates Inc., has challenged this lengthy timeline, accusing the SEC of dragging its feet. The documents in question pertain to two closed investigations: one involving Enigma MPC, which settled with the SEC in 2020 over an alleged securities violation, and another involving EtherDelta founder Zachary Coburn, who settled charges for failing to register his decentralized trading platform.
These documents might reveal important information about the SEC’s past methods of enforcing crypto laws and could influence present regulations.
A Landmark Case for Crypto Regulation
Coinbase’s legal struggle may have far-reaching implications for the future of cryptocurrency legislation in the United States. The SEC will have to respond if the court grants Coinbase’s petition for partial summary judgment, which might reveal information that affects the regulatory landscape.
Aside from Coinbase, other cryptocurrency companies are suing the SEC. Most recently, Crypto.com filed a complaint against the regulator, adding to the rising animosity between the crypto industry and US authorities.
And of course, Ripple, and the XRP asset, remain entangled in an ongoing stoush with the SEC.
As this case moves forward, the outcome could set a precedent for how digital assets are treated under securities law, potentially answering fundamental questions about the nature of cryptocurrencies and providing much-needed regulatory clarity for the industry.
