Coinbase sues the SEC just a week after it threatened to leave the US market

Last week, crypto exchange Coinbase said it may leave the US market if the regulatory uncertainty surrounding digital currencies continues. CEO Brian Armstrong told the audience at Fintech Week in London. The exchange has been in a legal tussle with the U.S. Securities and Exchange Commission (SEC) since last year.

But after months of silence from the federal regulator, Coinbase decided to take legal action against the agency. The crypto exchange is now asking a federal judge to force the SEC to share its answer on the company’s July 2022 petition on “whether existing securities rule-making processes could be extended to the crypto industry,” CNBC reported.

Despite the SEC’s recent enforcement actions against individuals and entities in the crypto industry, the July 2022 petition did not elicit a specific public response from the regulatory body. However, in March, the SEC issued a Wells notice to Coinbase, signaling the possibility of enforcement action against the exchange.

The 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.

While the SEC did not provide a specific public response to Coinbase’s petition, the regulatory body has significantly increased its enforcement actions and warnings against crypto exchanges, including Coinbase, in recent months. Coinbase’s Chief Legal Officer also took to social media to announce the lawsuit.

“Today, we filed a narrow action in the U.S. Circuit Court to compel the SEC to respond “yes or no” to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry,” Paul Grewal said in a tweet.

Today, we filed a narrow action in the U.S. Circuit Court to compel the SEC to respond “yes or no” to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry. 1/4 https://t.co/rlsS1DIFfl

— paulgrewal.eth (@iampaulgrewal) April 25, 2023

In a blog post, Grewal added: “From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision.”

Meanwhile, in an interview with CNBC last Tuesday, Armstrong said the company is preparing for a years-long court battle with the SEC after the regulator warned the crypto exchange of potential violations of securities law.

Coinbase was issued a Wells notice by the SEC in March, which is typically one of the last stages before the regulator formally presses charges. The notice usually outlines the basis of the regulatory case and gives the accused party a chance to challenge the SEC’s allegations.

But Armstrong called the issuing of the Wells notice “unfortunate” and said Coinbase has not got any more information on the specific issues the SEC has.

“We’ve met with them over 30 times in the last year … never got a single piece of feedback from them about what we can be doing better or differently, and then this Wells Notice arrived,” Armstrong told CNBC in an interview.

Cooinbase was founded in 2012 by Brian Armstrong and Fred Ehrsam. The San Francisco, California-based Coinbase is a digital currency wallet and platform where merchants and consumers can transact with new digital currencies like Bitcoin, Ethereum, and Litecoin.