The complaint stems from the company’s petition for rulemaking, which it filed with the SEC last summer, demanding that the commission develop and approve a regulation unique to digital assets. The complaint seeks to compel the agency to respond to Coinbase’s request with a yes or no.
Since Coinbase’s request, the SEC has updated custody and exchange rules to expressly state that they apply to digital assets, but has not participated in developing a digital asset-specific rule. In addition, the government has taken multiple enforcement measures against cryptocurrency companies, including an investigation into Coinbase.
“Based on the SEC’s public statements and enforcement activity in the cryptocurrency industry, it appears that the SEC has already decided to deny our petition.” However, they have not yet informed the public. So the lawsuit Coinbase filed today merely requests that the court request that the SEC share its decision,” the company’s chief legal officer Paul Grewal stated in a blog post about the petition.
Coinbase’s case is a writ of mandamus, which is a sort of litigation for “exceptional circumstances” in which a court might order federal officials to act. One of the outside counsels representing Coinbase in their appeal is Eugene Scalia, son of former Supreme Court Justice Antonin Scalia and former secretary of labor, a cabinet-level position. Scalia, who is now a partner at the legal firm Gibson Dunn, has won multiple lawsuits against financial regulators, including one against the Financial Stability Oversight Council, which resulted in the cancellation of MetLife’s “too big to fail” regulatory status.
If the SEC refuses to issue a new rule, Coinbase can bring another action in federal court to force them to do so. The case is not the crypto company’s first legal battle with the US authorities. Aside from the SEC inquiry of Coinbase’s listing of some digital assets, as well as its wallet and staking services, the trading platform supported a lawsuit against the US Treasury Department over the sanctioning of transaction mixer Tornado Cash.
Last year, the SEC and federal prosecutors prosecuted a former employee, Ishan Wahi, with leaking the public listing to Coinbase clients in a landmark insider trading case for the digital asset market. The SEC claimed that nine of Coinbase’s tokens were unregistered securities, exposing the exchange to legal liability; the SEC lawsuit against Wahi was submitted on the same day that Coinbase filed its petition with the regulatory agency. Coinbase has not been accused of any wrongdoing.
The tokens accused by the SEC to be unregistered securities were also listed by other crypto businesses, posing a legal danger for much of the industry that sells tokens to customers in the United States.
Wahi pleaded guilty to the criminal case earlier this year, and in a recent joint court filing with the SEC earlier this month, he indicated that he could be willing to settle and cooperate in the civil case brought against him.