The United States Securities and Exchange Commission has denied a Coinbase petition for rulemaking on transactions with cryptocurrencies that are securities. Coinbase filed the petition in July 2022 and pushed steadily for a response.
SEC Chair Gary Gensler announced the commission’s decision in a Dec. 15 statement. He gave three reasons for denying Coinbase’s petition, which requested “rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.”
Gensler first argued that existing laws and regulations already apply to crypto. His phrasing was nuanced:
“There is nothing about the crypto securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws.”
Coinbase chief legal officer Paul Grewal, who signed the petition, had foreseen this argument and appended to the petition a discussion of the Howey test and Reves decision, U.S. Supreme Court “articulations” that are crucial to modern securities law. Gensler responded to the arguments in the Coinbase appendix. That was the only part of the 32-page petition that Gensler addressed directly.
Gensler went on to say the timing is wrong for the rulemaking proposed by Coinbase. He said the SEC is currently soliciting comments on rules applicable to crypto. Finally, Gensler said rules are made at the discretion of the agency:
“We thoughtfully consider the timing and priorities of our regulatory agenda and how to best utilize our talented and hardworking staff.”
SEC Commissioners Hester Peirce and Mark Uyeda released a joint statement criticizing the decision. They acknowledged the latter two points made by Gensler but suggested that the issues raised in the petition deserved to be addressed. “Any exploration of these issues should include public roundtables, concept releases, and requests for comment, which would afford us the opportunity to hear from a wide range of market participants and other interested parties,” they wrote.
Coinbase filed a writ of mandamus, which would require the SEC to respond to its petition under court order, in April, nine months after it filed the petition and one month after it received a Wells notice warning it that the SCE may take legal action against it. The SEC replied in May that Coinbase has no right to mandamus, and rulemaking could take years.
After more rounds of court filings, the SEC committed to responding to the Coinbase petition by Dec. 15.
Today the SEC denied Coinbase’s petition for rules for crypto. After 18 months of silence, we went to court to get the response the law requires. With appreciation for the Third Circuit, later today we’ll again seek its help by challenging the SEC’s abdication of its duty. 🧵⬇️ pic.twitter.com/tFjiW53eF7
— paulgrewal.eth (@iampaulgrewal) December 15, 2023
Grewal responded to the SEC decision in a post on X (formerly Twitter). “With appreciation for the Third Circuit [Court], later today we’ll again seek its help by challenging the SEC’s abdication of its duty,” he wrote.