Coinbase is taking a risk in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), attempting to compel the regulator to uncover critical documents that could clarify how securities regulations apply to cryptocurrencies.
Tuesday, Coinbase appeals for partial summary judgment in its action against the SEC in the United States District Court for the District of Columbia. The exchange is asking the court to order the SEC to reveal internal documents, which Coinbase says are key to understanding the agency’s position on cryptocurrency regulation.
Coinbase’s legal team wants to collect documents showing how the SEC enforces restrictions on cryptocurrencies. The company argues that the SEC systematically denied Coinbase access to these documents, which it requested under the Freedom of Information Act (FOIA). The SEC is now proposing a three-year delay before deciding whether to disclose the requested information, a delay that Coinbase finds unacceptable.
The exchange’s lawsuit, which it filed in June, came after what Coinbase describes as a “failed FOIA request.” FOIA is a law that allows the public to access federal agency records, but Coinbase claims the SEC and Federal Deposit Insurance Corporation (FDIC) have withheld critical information about their cryptocurrency positions.
Why these documents are important
The purpose of Coinbase’s request is to access internal and external communications, particularly those relating to the SEC’s investigations into the securities classification of Ethereum (ETH) and other digital assets. This is a serious issue because the way Ethereum is classified could have far-reaching consequences for the entire cryptocurrency industry. A similar battle is taking place in the SEC case against Ripple, where the classification of XRP as a security has sparked widespread controversy.
Marc Fagel, a former SEC officer, recently hinted that the agency can appeal a court decision regarding XRP secondary transactions. This indicates that there is still much debate over whether different cryptocurrencies are securities, and Coinbase’s advocacy for openness is one element of a broader initiative by the industry aimed at clarifying these regulatory ambiguities.
SEC faces criticism for delays
Coinbase’s annoyance with the SEC is not unique. The agency has been criticized for delaying the release of important documents. The SEC has also been criticized for going too far in its regulatory activities, in addition to its crypto enforcement operations. The regulator accused Coinbase of offering products without registering as an exchange in a separate action launched against the company last year.
The ongoing dispute between Coinbase and the SEC reflects a broader fight for regulatory clarity in the cryptocurrency space. Many crypto companies have been targeted by the SEC for operating without proper registration, leading to repeated enforcement actions by the agency.
The fight over FOIA requests
Coinbase initially faced strong resistance from the SEC, which argued that it was exempt from FOIA requirements. The agency admitted that its exemption might not be absolute, however, which could open the door to partial disclosure of documents. Even with this compromise, the SEC insists it will take three years to review and possibly release the requested documents.
The consulting firm hired by Coinbase, History Associates Inc., disputed the lengthy delay, accusing the SEC of dragging its feet. The documents in question relate to two closed investigations: one involving Enigma MPC, which settled with the SEC in 2020 over an alleged securities violation, and another involving EtherDelta founder Zachary Coburn, which settled charges for failure to register its decentralized trading platform.
These documents could reveal important information about the SEC’s past methods of enforcing crypto laws and could influence current regulations.
A landmark case for crypto regulation
Coinbase’s legal fight could have far-reaching implications for the future of cryptocurrency law in the United States. The SEC will have to respond if the court grants Coinbase’s request for partial summary judgment, which could reveal information affecting the regulatory landscape.
Besides Coinbase, other cryptocurrency companies are suing the SEC. Most recently, Crypto.com filed a complaint against the regulator, adding to the growing animosity between the crypto industry and US authorities.
And of course, Ripple and the XRP asset remain entangled in an ongoing dispute with the SEC.
As this case moves forward, the outcome could set a precedent for how digital assets are treated under securities law, potentially answering fundamental questions about the nature of cryptocurrencies and providing much-needed regulatory clarity to the sector.
