- Coinbase has sued the SEC.
- The lawsuit comes despite potential enforcement action from the SEC.
- A former SEC official has weighed in on how the case will affect the SEC
Coinbase has primarily presented itself as a compliant crypto business willing to work with regulators. In the United States, however, tensions between the crypto exchange and the U.S. Securities and Exchange Commission have escalated. Coinbase has sued the regulator, even as it faces the threat of enforcement action from the side of the SEC.
How Will Coinbase’s Suit Impact the SEC?
Coinbase revealed that it had filed legal action against the SEC in a company blog post by Chief Legal Officer Paul Grewal on Monday, April 24. The case filed in federal court seeks to force the markets regulator to respond to a petition the crypto exchange filed in July 2022 that requested that the regulator create clear rules for the crypto markets.
Coinbase sued the SEC despite receiving a Wells notice from the regulator in March over its asset listings, staking program, non-custodial wallet, and advanced trading platform.
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According to a tweet from former SEC Regional Director Marc Fagel on Tuesday, April 25, the lawsuit will have no bearing on the agency’s planned enforcement action.
“This [Coinbase’s lawsuit] has no impact on the impending enforcement action, which I think most likely is filed in 30-60 days,” Fagel tweeted
Fagel went on to say that the SEC is too “process-oriented” to rush a planned enforcement action due to perceived provocation.
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"The lawyers behind it are brilliant (and my former partners). But it's also highly unlikely to generate anything useful, and will do nothing to derail the anticipated enforcement action.," he emphasized in a separate thread.
The former SEC director also shed light on when the case will likely end as the topic dominates conversations on crypto Twitter.
How Long Will the Case Take?
The Founder of Ludlow Street Advisors, Attorney James “MetaLawMan” Murphy, expects Coinbase’s case against the SEC to be resolved within a few months; Fagel has a different view.
According to Murphy, the lawsuit should last only a few months as it starts in the Court of Appeal. Unlike the SEC’s case against Ripple, which has dragged on for over two years, the case will involve only a briefing and oral arguments, with no fact-finding process.
On the other hand, Fagel said realistically, the matter will take years.
"If they win, all it does is require the SEC to respond to their rulemaking petition. If the SEC declines to enact the rule, a new lawsuit has to get filed challenging that decision. It'll take years, and meanwhile the enforcement action proceeds unimpeded" he tweeted.
On the Flipside
- SEC Chair Gary Gensler maintains that existing securities laws are sufficient to guide the nascent market and has called on exchanges to register.
Why You Should Care
Coinbase’s latest lawsuit encapsulates the frustration of the crypto industry concerning the lack of regulatory clarity in the U.S.
To learn more about the SEC’s planned case Coinbase, read this:
Coinbase Draws SEC’s Ire as Major Exchange Faces Lawsuit
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