Coinbase challenges SEC suit, says agency’s rules lack merit

“We welcome dialogue any time with any regulator, including the SEC, and believe new legislation and rulemaking is the right path forward. But the claims in this case go far beyond existing law – and should be dismissed,” Grewal stated in the tweet.

He further said Coinbase “operates a secondary market in certain digital assets known as tokens or crypto assets or cryptocurrencies. It is not, and has never been, a securities exchange, or a broker, or a clearing agency under the federal securities laws.” 

Grewal said, “The SEC’s claims lack all merit. Its still-evolving legal position rests on a novel, atextual, and acontextual construction of the word “investment contract” in the federal securities statutes that runs directly contrary to SEC officials’ public admissions about the limits of their agency’s statutory authority. Even were the proffered construction colorable, the major questions doctrine would counsel against its adoption by this Court and in favor of deference to Congress’s legislative prerogative to tackle for itself major policy decisions affecting substantial industry segments.”

Grewal reiterated that the Coinbase is still operating today the same business it was operating in April 2021, when the SEC allowed the Company to go public without first registering as a national securities exchange or broker or clearing agency, and without first registering its staking services as an investment contract. Nothing of legal significance has changed since then.

Grewal said in the Tweet, even were the SEC correct that the assets and services it identifies are within the scope of its existing regulatory authority, this action must be dismissed on the independent grounds that it violates Coinbase’s due process rights and constitutes an extraordinary abuse of process. 

For years, Coinbase has voluntarily submitted to regulation by multiple overlapping regulatory bodies, has adhered to the public and limited formal guidance from the SEC, senior SEC Staff, and the courts about the application of securities law to its industry, and has begged the SEC for guidance about how it thinks the federal securities laws map onto the digital asset industry as the SEC’s actions reflected an escalating but undisclosed change in its own view of its authority, Grewal added.

Grewal further said rather than testing its new view through notice-and-comment rulemaking, the SEC has chosen to roll out its ever-aggressive agenda through punitive retroactive enforcement actions. Agency enforcement authority is important but not boundless. The SEC’s action here is beyond those bounds and unlawful.

Updated: 29 Jun 2023, 11:03 PM IST