Frustrated over the lack of response, Coinbase filed a narrow action in federal court to force the SEC to respond yes or no to its July 2022 petition.
The July 2022 petition asked that the SEC “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods,” referring to digital assets like cryptocurrencies.
Instead of offering a public response to the exchange’s petition, SEC in recent months has aggressively led enforcement drives and warnings against crypto exchanges, including Coinbase.
“The SEC is required by law to respond to petitions within a reasonable time, but they have not yet responded to our petition from last July, which is why we filed our action in court today.” Coinbase chief legal officer Paul Grewal wrote in the Twitter thread.
Till now, over 1,700 entities and individuals have submitted comments to Coinbase’s petition echoing the request for clarity.
The lawsuit comes after Securities and Exchange Commission chair Gary Gensler avoided giving a straight answer, to Congressman Patrick McHenry’s query about whether Ether is security.
McHenry also brought up the murky legal environment surrounding the crypto industry during the recently concluded congressional oversight hearing.
He noted that while the current SEC chair decided to launch several enforcement actions without first defining the asset class, the previous director of the SEC, Bill Hinman, had declared Bitcoin and Ethereum to be non-securities.
Coinbase’s Rulemaking Petition
Coinbase’s Grewal cited the hearing to highlight the regulatory ambiguity.
“It’s obvious that there’s a lack of clarity among our regulators regarding crypto, as even the chair of the SEC has declined to say which crypto assets are securities.”
“The crypto industry and its users need clear laws and rules to follow that are built for new technology. Enforcement actions based on inapplicable securities law aren’t the answer,” he added.
In accordance with the blog post, the SEC is required by the Administrative Procedure Act [“the APA”] to reply to Coinbase’s rulemaking petition “within a reasonable time.”
If the SEC rejects its rulemaking petition, as it is entitled to do, Coinbase would be free to appeal that decision in court and provide a formal justification for why rulemaking is necessary.