Coinbase filed its opening brief in the Third Circuit, challenging the SEC’s denial of its rulemaking petition. In the 78-page brief, the platform argued that significant changes in agency policy, especially those involving regulatory authority, should undergo a formal rulemaking process like allowing public input and providing fair protective notice and judicial review and not “workshopped in enforcement suits.”
Coinbase’s rulemaking petition highlighted the SEC’s “lack of clarity regarding how to determine whether a digital asset is a security.” It urged the regulator to “provide clarity” on that key threshold issue “by defining digital asset security through rulemaking.” The exchange also explained that existing securities regulations are “fundamentally incompatible with the operation of digital asset securities.”
In the brief, the trading firm highlighted the SEC’s contradictory positions in litigation [ the Ripple case and the Hinman speech position].
Speaking on the filing, Coinbase Chief Legal Officer Paul Grewal accused the agency of a sudden and drastic shift in its regulatory approach to the crypto industry, moving from acknowledging limitations to aggressively enforcing its authority.
Even if the SEC believes it can lawfully assert new authority over digital assets today (it can’t), it must explain why in a rulemaking process and give the public a chance to understand and challenge that view. That hasn’t happened here, and yet it’s what the law requires.
Coinbase On Default Judgements
Earlier, Grewal shed light on the recent SEC case where trading certain crypto assets on secondary markets like Coinbase was declared a securities transaction, aligning with Chair Gary Gensler’s stance. Grewal was critical of the default judgments, where there was no opposition to the claims made by the regulator due to the absence of the defendant. An absence in the contested hearing meant that the judge made the decision relying solely on the SEC’s side of the story, even if it might be outlandish or incorrect.
He criticized the regulator’s tactic of going after absent defendants and intermediaries while avoiding issuers, calling it troubling. As per him, those with the “greatest incentive and access to information” lose the chance to counter the SEC’s arguments, denying them fair and equitable justice.