The SEC Calls Coinbase’s Suit Over Digital Asset Rules Petition ‘Baseless’

The Securities and Exchange Commision said that the commision is not required to establish new regulations and that Coinbase lacks the legal authority to sue the organization in response to Coinbase’s lawsuit seeking a response to the company’s petition for new digital asset regulations.

The long-running disagreement between the cryptocurrency industry and the market regulator over which digital assets should be classified as security investments, subject to the current registration and transparency requirements, or exempted because they don’t neatly fit into those existing laws is at the core of the lawsuit.

The Securities and Exchange Commission’s lawyers replied in a late-Monday filing to the Third Circuit of the U.S. Court of Appeals, “Neither the securities laws nor the Administrative Procedure Act impose on the Securities and Exchange Commision an obligation to issue the broad new regulations regarding “digital assets” Coinbase has requested.

The SEC’s answer to the Coinbase complaint is the most recent escalation in the developing hostilities between the trading platform and market regulator since last summer.

The lawsuit is also unduly close to the time Coinbase requested the new set of rules, the agency claimed. It attempts to compel the SEC to provide a detailed response to Coinbase’s petition, with the risk of more legal conflict afterward.

According to the SEC, “Coinbase seeks an immediate determination on the rulemaking petition that asks the Commision to take a series of discretionary actions to replace applicable securities laws and regulations with a comprehensive new regulatory regime for the trading of crypto assets that are securities.” “Considering the various paths it suggests is a necessarily complicated endeavour, as Coinbase’s own submissions make clear.”

The SEC said that Coinbase’s complaint was filed less than a year after it requested new regulations that might significantly alter the U.S. financial system beyond cryptocurrencies and digital assets. The SEC referred to Coinbase’s claim that the petition’s outcome had already been decided as “baseless” and stated that the commision could still opt to proceed with crypto-specific laws.

“The Commision continues to consider Coinbase’s petition in the ordinary course,” according to SEC attorneys. Regulators frequently say that although the crypto business is subject to rules and laws, it doesn’t like them. This is echoed in a portion of the SEC’s reasoning.

The SEC’s attorneys state in their petition that “as part of the Commission’s overall regulatory agenda, it is also pursuing a number of actions that concern cryptocurrency assets that are securities.”

These activities include the SEC’s proposed rule changes for cybersecurity, trade execution, and exchange-related matters, to which Coinbase sent a response letter last week and the proposed rule modifications for how companies safeguard customers’ funds. The commision contends that these modifications and the input from businesses, academics, and consumers that the agency seeks as part of its rulemaking procedure are considered when determining whether or not completely new regulations on digital assets are necessary.

“The information gathered from any or all of these efforts could inform the Commission’s consideration of its regulatory approach in this area, including its consideration of the regulatory approaches suggested in Coinbase’s petition,” the SEC writes in its filing.

The SEC also claims that it has guided digital assets outside of enforcement actions over the years, citing several public documents released by the organization over the years, including a widely reported 2017 report on the original Decentralised Autonomous Organisation and the tokens it issued.

At the same time that the commision accused a former Coinbase executive of the first-ever insider trading case involving cryptocurrencies, Coinbase petitioned the commision for new regulations governing digital assets. In late March, almost a month before filing a lawsuit against the federal regulator, Coinbase also confirmed that the SEC looked into various aspects of the company’s operations.

Ishan Wahi, a former employee, was given a two-year prison sentence last week after entering a guilty plea to allegations that he took part in the company’s front-running listings. He sent a court notice in April that he would probably resolve his connected but unrelated civil dispute with the SEC.

Authorities have not charged Coinbase with any crime in connection with the matter, but the SEC designated a number of the tokens that Wahi traded using insider information as securities, suggesting that the agency thought Coinbase had improperly listed them.

Despite the SEC’s successful track record in taking enforcement measures against companies that deal in digital assets, the lawsuit is considered as a huge bet by Coinbase that starting legal proceedings will increase its leverage.