A U.S. court has issued an ultimatum to the Securities and Exchange Commission, giving the regulator seven days to clarify its position on a rulemaking petition from crypto exchange Coinbase.
In the order, issued by the U.S. Court of Appeals for the Third Circuit, judge Cheryl Ann Krause ordered the SEC to reveal whether it has decided to deny Coinbase’s petition, and if not, how much time it requires to determine whether to grant or deny the petition.
Coinbase filed a public petition to the SEC in July 2022 asking the Commission to clarify its rules on which assets should be regarded as securities and how to regulate digitally native securities.
In April 2023, after the SEC issued a Wells Notice to the exchange warning that the company's staking products constituted unregistered securities, the exchange responded by filing an Administrative Procedure Act challenge in a bid to force the Commission to respond to its petition.
Earlier tonight the Third Circuit issued a short order in Coinbase’s mandamus action today. The court noted the SEC’s suit against us this morning and asked the SEC whether that means the SEC has decided to deny our pending petition for rulemaking. The SEC has 7 days to respond. pic.twitter.com/8QXXoHJ07Z
— paulgrewal.eth (@iampaulgrewal) June 7, 2023
Coinbase chief legal officer Paul Grewal tweeted that, "If the SEC's answer to our petition for rulemaking is "no," then they are required by law to tell us, because we have the legal right to question that "no" in court."
He added that, "rules of the road, from legislation or rulemaking or both, must come before enforcement actions."
Coinbase vs the SEC
The court order comes amid a ramping-up of the legal battle between the SEC and Coinbase.
On Tuesday, the United States Securities Exchange Commission (SEC) charged Coinbase for violating license rules and offering unregistered securities via its staking service.
In a tweet, Grewal pointed out that the Third Circuit court had “noted the SEC’s suit against us this morning,” and added that, “the SEC could not be proceeding with litigation against our industry, like the case filed against us today, if the SEC had not already decided to deny our petition for rulemaking.”
Grewal also called upon the U.S. Congress to approve a draft bill, the Digital Asset Market Structure Discussion Draft, at a hearing before the House Agriculture Committee yesterday.
Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. https://t.co/FwpdmENvoL
— Gary Gensler (@GaryGensler) June 6, 2023
The bill aims to establish rules for differentiating which digital assets are securities or commodities, and clarify the jurisdiction of agencies regarding enforcement.
As part of Coinbase’s push for clarity from U.S. regulators on crypto rules, the exchange's CEO Brian Armstrong last week urged lawmakers to clarify their stance on crypto, arguing that failing to do so would drive innovation away from the U.S.