The U.S. Securities and Exchange Commission (SEC) has turned down Coinbase's request to establish guidelines for trading securities in the cryptocurrency realm. Coinbase had submitted this petition in July 2022 and had been actively pressing for a response.
In a statement on December 15, SEC Chairman Gary Gensler outlined three primary reasons for rejecting Coinbase's petition. He emphasized that existing laws and regulations already encompass cryptocurrencies, stating, "There is nothing to suggest that investors and issuers in the cryptocurrency securities market do not warrant the protections provided by our securities laws."
Coinbase's chief legal officer, Paul Grewal, who had signed the petition, had anticipated this argument. He appended a discussion of legal precedents such as the Howey test, the Reves decision, and pertinent U.S. Supreme Court statements critical to modern securities law. Gensler specifically addressed Coinbase's arguments in an addendum, the only direct reference to the 32-page petition. Additionally, Gensler asserted that the timing for Coinbase's proposed rulemaking was inappropriate, noting that the SEC is currently seeking public comments on regulations applicable to cryptocurrencies. Gensler stressed that rulemaking falls within the discretion of the agency, stating, "We consider the timing and priorities of our regulatory agenda thoughtfully, optimizing our dedicated workforce."
However, SEC Commissioners Hester Peirce and Mark Uyeda issued a joint statement expressing dissent with the decision. While acknowledging Gensler's latter points, they advocated for addressing the concerns raised in the petition. They recommended a comprehensive approach involving public roundtables, concept releases, and solicitations, facilitating input from diverse market participants and stakeholders.
Following the SEC's rejection, Coinbase filed a mandamus in April, seeking the court's order for the SEC to respond to its petition. This action occurred nine months after filing the petition and following receipt of a Wells notice from the SEC, cautioning about potential legal action. In response, the SEC asserted that Coinbase lacked the authority to enforce its obligations and cautioned that formulating rules could extend over several years. Grewal, in response to the SEC's decision, announced on X (formerly Twitter) the intent to seek the Third Circuit's intervention, challenging the SEC's perceived abdication of responsibility.
