Dismissing the most recent response from the Securities and Exchange Commission to its long-delayed petition on rulemaking, Coinbase is demanding once again that the agency take prompt action on a request it made last year for formal rules on which digital assets count as securities.
If the SEC won’t do that, the exchange wants the courts to force the SEC to take action.
In a filing submitted to a Manhattan federal court on Friday, Coinbase accused the SEC of a pattern of “troubling intransigence” for refusing to act on its rulemaking petition that was filed last July. The agency previously called for a delay from the court that was granted in June, but a recent filing by its lawyers said that a recommendation was made in this direction with no guidance yet issued.
This pattern, Coinbase’s outside counsel Eugene Scalia wrote, amounts to a tacit admission that the SEC “has no intention” of taking action on the request. By not acting, Scalia said the SEC has left digital asset “stuck in an unprecedented Catch-22.”
“The SEC’s unilluminating report is mere bureaucratic pantomime and confirms that nothing short of mandamus will prompt the agency to take its obligations seriously,” wrote Scalia, a partner at Gibson Dunn and the son of late Supreme Court Justice Antonin Scalia.
A mandamus is a judicial writ from a higher court to a lower court ordering the latter to perform its statutory duty.
The original Coinbase request was a petition for rulemaking, asking the SEC to lay out how companies can stay within the bounds of federal securities laws. Almost a year later, on June 6, the SEC sued Coinbase on allegations that it was an unregistered securities exchange. Following this lawsuit, the Third Circuit of the U.S. Court of Appeals ordered the agency to reveal whether it has decided to deny Coinbase’s petition.
Gary Gensler, the SEC’s chairman, has stated repeatedly that existing laws already make clear how digital asset companies must comply with the law, and accused them of refusing to abide by the rules.
In its own filing on October 11, the SEC said that its staff issued a recommendation for action on the request, but Scalia said that this response was inadequate and deliberate.
“The agency cannot hide behind opaque allusions to unspecified internal advice offered by its staff,” said Scalia, adding that this response was the “latest gambit to stave off judicial review of its de facto denial.”
As proof that the SEC denied the petition, Scalia said the SEC’s Division of Corporate Finance called on Coinbase CEO Brian Armstrong to delete a disclosure that there is “no certainty” regarding regulations of digital assets, and that the law is “well-established.” This, Scalia continued, contradicted a December 2020 letter to Armstrong that requested the provision be added.
If the SEC now has a recommendation related to the rulemaking petition, Scalia said that the court should force the SEC to make its recommendation public within 30 days.
“The Commission has resolved not to conduct the rulemaking Coinbase requested,” said Scalia. “The Commission’s staff have now acted; the Commission is readier than ever to do so.”
