Court Orders SEC to explain why it did not produce crypto rules

A court ordered the United States Securities and Exchange Commission (SEC) to explain why it denied Coinbase’s petition for crypto-specific rules.

The Third Circuit Appeals Court described the SEC’s decision to not comply with the request for crypto-specific rules was “arbitrary and capricious,” according to a report by industry news outlet The Block. While the court’s ruling requires the regulator to provide its reasons for the denial, it does not require it to draft such rules. The ruling reads:

“Because we believe the SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition in part and remand to the SEC for a more complete explanation. […] But we decline at this stage to order the agency to institute rulemaking proceedings.”

Coinbase and the SEC have been in litigation for years over the need for clear rules for the cryptocurrency space. The exchange accused the regulator of actively trying to destroy the industry in a May 2024 filing:

“This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it. […] The SEC claims that its stance on digital assets has never shifted […] but that is untrue, and the SEC’s contrary evidence is nothing more than abstract statements that application of the securities laws to digital assets turns on the ‘facts and circumstances’.”

The SEC also sued Coinbase back in 2023 for allegedly violating securities laws by allowing the trading of Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (Flow), Internet Computer (ICP), Near Protocol (NEAR), VGX, DASH and NEXO. The regulator wrote in the complaint:

“The Coinbase Platform merges three functions that are typically separated in traditional securities markets—those of brokers, exchanges, and clearing agencies. Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets.”

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