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A federal appeals court considered elements of the SEC's legal battle against Coinbase yesterday, but we will need more time to determine the exact impact of the decision.
the The Securities and Exchange Commission has filed a lawsuit against Coinbase in June 2023 for alleged securities violations. The cryptocurrency exchange later denied it Petition for rulemaking In December of that year. The petition essentially argued that the SEC's strategy of using existing securities laws to enforce cryptocurrency regulation is "impractical."
The court noted that the agency's response was one paragraph. The SEC essentially said it disagreed, stating that it "has discretion to determine the timing and priorities of its regulatory agenda."
Simply put: Agencies can choose between rulemaking and adjudication, Justice Stefanos Bibas wrote for the court to request Submitted on Monday.
“But they must explain their choice, and the SEC has failed to do that,” he added.
The court does not order the SEC to initiate rulemaking proceedings, giving the SEC what some might consider a partial victory. The SEC has “reasonably demonstrated that the current securities law framework is not based on the assumption that it will not burden any potential new market participants,” the filing adds.
But the court He does I believe the SEC's decision was "categorical, insufficiently justified, and therefore arbitrary and capricious."
the solution? Bibas asked the SEC to explain its position, adding: “It should not give another bad explanation in an already long line of them.”
“We are reviewing the decision and will determine next steps as appropriate,” an SEC spokesperson told me.
Did you notice that "arbitrary and capricious" phrase in the seventh paragraph? It's rarely used in everyday life, but you may recognize it from another Administrative Procedure Act (APA) case.
Grayscale Investments won that case after the court ruled that the SEC's rejection of Grayscale's proposal to convert a Bitcoin Trust into an ETF (but approving Bitcoin futures funds) was, you guessed it, "Arbitrary and capriciousThe justices argued at the time that the agency did not “properly explain its different treatment of similar products.”
The former vice president of communications at Coinbase worked on the candid legal response to the latest court filing:
The Third Circuit's thoughts follow Coinbase last week She won her move to Preliminary appeal On whether cryptoassets constitute investment contracts.
Although the court on Monday did not enforce the SEC's rules at this time, Coinbase executives consider the latest opinion as another victory.
Katherine Minarik, Chief Legal Officer at Uniswap Labs (and former Deputy General Counsel at Coinbase) Shoot it "A very well-deserved outcome" that forces the SEC "to really look at it and respond with some substance. As it should."
Coinbase Chief Policy Officer Faryar Shirzad books On Chief Legal Officer Paul Grewal Clap Judge Bibas strongly agreed, calling it an “impressive piece of work.”
Bibas pointed to the “vigilance” that the SEC applies against cryptocurrency companies without telling them how to comply with the law. Such a measure “creates a serious constitutional problem,” he said.
He added that sporadically applying “inappropriate rules” against industry entities that try to follow regulations goes beyond fighting fraud.
“It targets an entire industry and risks de facto banning it,” Bibas wrote. “In the case of pretrial detention, the SEC should address this issue.”
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