The US Securities and Exchange Commission must now thoroughly “explain” itself for refusing to grant Coinbase’s formal request. for the agency to draft regulations on how the industry should evaluate whether crypto assets are securities or not, according to a circuit court ruling on Monday.
A three-judge panel of the U.S. Court of Appeals for the Third Circuit, in a legal rebuke to the securities regulator, partially sided with Coinbase’s effort to get the agency to offer legal clarity when drafting crypto regulations.
“Rather than forcing the agency to issue a rule, we order it to explain its decision not to do so,” one of the judges wrote. “In fact, a rule may not be necessary to resolve the notification issues here; the agency could simply state its position on cryptoassets unambiguously.”
Judge Stephanos Bibas added a warning to the SEC: “It should not give another bad explanation in an already long list of them.”
The legal blow to the agency — the second setback in a Coinbase-related case in less than a week — could leave an opening for its new leadership. Chairman Gary Gensler, the architect of the SEC’s intensive approach to cryptocurrency enforcement in recent years, will leave office when President-elect Donald Trump is sworn in on January 20. Trump’s chosen replacement, former commissioner Paul Atkins, could have a chance to use this. lawsuit to answer that yes, his agency will change its course on cryptocurrency supervision.
Or, even sooner, an acting chairman like acting Commissioner Mark Uyeda, one of the agency’s two current Republican members, could be in a position to get the ball rolling while Atkins awaits a Senate confirmation process.
Monday’s ruling called the SEC’s crypto actions “arbitrary and capricious,” echoing language from the D.C. Circuit Court of Appeals when it rejected the agency’s opposition to Grayscale’s application for an exchange-traded fund (ETF). ) spot bitcoin (BTC).
“Because we believe the SEC’s order was conclusive and insufficiently motivated, and therefore arbitrary and capricious, we grant Coinbase’s motion in part and remand to the SEC for a more complete explanation,” the judges ruled in this case. However, the circuit court did not believe that Coinbase’s arguments justified a clear need to demand new rules from the regulator.
“We are reviewing the decision and will determine next steps as appropriate,” an SEC spokesperson said in response to a request for comment.
“We appreciate the court’s careful consideration,” Coinbase Chief Legal Officer Paul Grewal said in a post on social media site Coinbase has been fighting with the agency, including its defense against an SEC enforcement action. Last week, a federal court granted the exchange’s effort to fast-track a key legal issue in that case to an appeals court.
Read More: Coinbase Made Significant Breakthrough in Gensler’s SEC Court Showdown
While the partial ruling against the SEC was overwhelming, one of the judges added his harshest opinion on the agency’s performance in this case.
“If the SEC were to promulgate a rule banning cryptoassets, it would surely face legal challenges,” Judge Bibas noted. “One might wonder whether an agency whose mission is to maintain fair, orderly and efficient markets is authorized to ban an emerging technology… So the SEC has circumvented the rulemaking process by instead seeking a de facto ban by law enforcement.”
