CryptoLaw founder John E. Deaton has recently responded to U.S. Securities and Exchange Commission (SEC) chair Gary Gensler’s rejection of Coinbase’s proposal for new crypto-specific rules.
This week, the SEC rejected Coinbase’s 30-page rulemaking petition. Gensler asserted that the current securities framework sufficiently governs crypto asset securities, actively addressing the crypto securities markets through rulemaking and enforcement.
Gensler provided three reasons for the rejection, explaining all of them in his official statement.
“First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well,” he wrote. “Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”
Gensler acknowledged that not every crypto asset is offered and sold as a security, aligning with a July ruling in the SEC’s case against Ripple Labs for its XRP token. While the SEC hasn’t classified bitcoin as a security, Gensler suggested in a February interview that he views most transactions in non-goods or services involving crypto tokens as securities deals.
Coinbase immediately filed a court challenge in response, seeking review from the U.S. Court of Appeals for the Third Circuit. The company claims the SEC’s refusal to engage in rulemaking was arbitrary.
Deaton criticized Gensler on social media, accusing the SEC chair of “gaslighting the American people.”
“In this letter, he states that there is nothing unique or new about cryptocurrencies, and states existing laws easily apply to crypto,” Deaton said. “But that’s not what Gensler said under oath.
“The Coinbase Petition for Rule Making simply recognized what Gensler and other leaders of the @SECGov believed. Except now, Gensler has done a 180 for political reasons. The SEC is supposed to be independent from politics. Instead, it is just one more federal agency weaponized against the American people.”
Coinbase fights back
Coinbase has now officially initiated a legal challenge against the SEC’s rejection of its 2022 rulemaking petition. The Coinbase chief legal officer Paul Grewal talked about the company’s commitment and shared the filing on X, calling the decision “arbitrary and capricious.”
“1/3 Promise made, promise kept: we are now on file with Third Circuit to challenge the SEC’s arbitrary and capricious denial of our petition for crypto rulemaking. We again appreciate the Court’s consideration.”
Paul Grewal, Coinbase chief legal officer
In the review petition, Coinbase argues that the SEC’s denial is an “abuse of discretion and contrary to law” under the Administrative Procedure Act. The company asserts that the SEC’s avoidance of rulemaking while enforcing regulations beyond its authority violates the APA and fairness principles.
Previously, in July 2022, Coinbase filed a petition. The company contended that the crypto industry needs an “updated rulebook” for guidance, stressing clarity for non-securities crypto assets.
After the SEC’s non-response to the petition and Coinbase’s receipt of a Wells Notice, the exchange escalated by filing a writ of mandamus with the Third Circuit and a petition for review in the same docket.
Earlier this year, Coinbase also made two regulatory clarity requests from the agency, both of which were declined. Simultaneously, the SEC has an ongoing lawsuit against Coinbase, alleging unregistered exchange operation and offering/selling of unregistered securities, including its staking product.
Despite legal developments, Gensler supports denying Coinbase’s rulemaking petition, citing ongoing initiatives for potential regulatory framework alterations. Grewal counters, asserting industry observers recognize the law’s lack of clarity and the need for further work in the crypto sector.