The largest cryptocurrency exchange in the United States, Coinbase, has filed lawsuits against the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) for failing to comply with information requests related to closed crypto cases.
According to filings in the United States District Court for the District of Columbia, Coinbase seeks to compel the SEC and FDIC to adhere to the Freedom of Information Act (FOIA) and respond to information requests from industry participants.
Coinbase Takes Legal Action Against SEC and FDIC
Coinbase argues that the SEC has assumed a new stance, claiming extensive authority over the growing crypto sector. Despite lacking a basis in securities laws, the SEC has launched enforcement actions against crypto firms without proper explanations. Coinbase alleges that the SEC, in collaboration with other financial regulators like the FDIC, aims to debank crypto firms and cripple the digital asset industry.
Coinbase, along with professional services research firm History Associates, has requested the SEC to substantiate its authority over the crypto space by providing records related to three investigations involving crypto firms and entrepreneurs. One investigation focused on Ethereum’s native asset, Ether, which the SEC declared not a security in 2018.
Last week, the SEC closed its investigation into Ethereum 2.0, the proof-of-stake network, implying that Ether remains classified as a non-security. However, despite the other investigations being closed for years, the SEC withheld all related records. Coinbase claims these refusals violated the SEC’s FOIA obligations.
Regulatory Transparency and Fair Notice
Coinbase asserts that the SEC’s inconsistent and unclear interpretation of securities laws deprives regulated parties of the fair notice required by due process. This leaves firms guessing whether their activities might be deemed securities transactions, subjecting them to potential investigation, prosecution, and penalties.
Paul Grewal, Coinbase’s chief legal officer, revealed that the FDIC also stonewalled requests for letters instructing financial institutions to pause crypto-related activities indefinitely. The FDIC’s Office of Inspector General has previously criticized such actions, arguing that they hinder financial innovation and growth in the crypto space.
Grewal stated, “This is no way to regulate. And this is no way to operate a transparent government. Today, we demand better from our financial regulators. We appreciate the Court’s attention to these important issues and look forward to sharing updates in the future.”
SEC’s Ongoing Lawsuit Against Coinbase
Meanwhile, the SEC has an ongoing lawsuit against Coinbase, alleging that the firm operates an unregistered securities exchange.
Conclusion
Coinbase’s legal actions against the SEC and FDIC highlight the tension between the cryptocurrency industry and regulatory bodies over transparency and fair regulatory practices. The outcome of these lawsuits could significantly impact the future of crypto regulation in the United States.
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