Coinbase has taken significant legal steps by initiating two lawsuits this Thursday against the US Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC).
The crypto exchange alleges that these agencies are unfairly targeting its operations through overregulation. It seeks clarity and transparency under the Freedom of Information Act (FOIA).
Coinbase Fights Against Regulation by Enforcement
The lawsuits, filed in the US District Court for the District of Columbia, accuse the SEC and FDIC of actively trying to sever the crypto industry’s access to essential banking services. Utilizing the services of History Associates Inc., Coinbase argues that these actions are part of a broader, unlawful strategy against digital assets.
The company’s legal challenge focuses on the SEC’s refusal to release information regarding Ethereum (ETH) and its transition to a proof-of-stake consensus mechanism. This request, initially raised by Consensys in a previous lawsuit against the SEC, is critical for Coinbase to grasp the regulatory body’s approach to cryptocurrency regulation and enforcement comprehensively.
In an interview with BeInCrypto, Hedi Navazan, the Director of Compliance and Regulatory Affairs at Crystal Intelligence, discussed the impact of Coinbase’s winning the lawsuit.
“If the court sides with Coinbase, it could potentially lead to a more clearly defined regulatory framework for cryptocurrencies. This might limit the SEC’s authority over certain types of cryptocurrencies. Whereas, a ruling against the FDIC could also potentially result in stricter oversight and clearer rules for how FDIC-insured institutions can interact with cryptocurrency companies, possibly leading to enhanced protections for crypto investors,” Navazan told BeInCrypto.
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Furthermore, Coinbase’s complaints include queries about past investigations related to figures such as Zachary Coburn and Enigma MPC, which were settled years ago. The SEC denied these requests, citing potential repercussions on ongoing enforcement activities. However, Coinbase disputes this justification, accusing the SEC of using privacy as a shield to obscure its regulatory intent.
Additionally, Coinbase’s grievance with the FDIC centers on the issuance of “pause letters” to banks, advising them to halt the expansion of crypto-related services. As described in a report by the FDIC’s Office of Inspector General, these actions lack sufficient transparency and contribute to uncertainty in the financial sector. Coinbase argues that these measures are less about oversight and more about outright obstruction, likening them to the infamous Operation Choke Point.
“One might say, history repeats itself. FDIC simply had to inform the banks they were overseeing that the government considered certain types of their customers “high risk.” The mere implication of a threat was enough to pressure banks into closing accounts, which resembles itself as Banks are reportedly being pressured to limit or terminate their banking relationships with companies in the crypto industry,” Navazan discussed with BeInCrypto, how US’ crypto crack down is similar to the operation choke point.
The ongoing dispute between Coinbase and the SEC also includes a lawsuit filed by the exchange in April 2023, pressing the SEC for a clear response to its request for crypto-specific rulemaking. Despite Coinbase’s efforts since July 2022, the SEC has not provided definitive regulations, instead choosing to adapt existing rules that Coinbase argues are ill-fitting for cryptocurrencies.
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This conflict highlights the crypto industry’s broader frustrations with what many describe as regulation by enforcement. SEC Chair Gary Gensler insists that most cryptocurrencies are securities and should be regulated accordingly, leading to numerous enforcement actions against various crypto platforms.
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