Coinbase sues SEC, demanding clearer guidance on cryptocurrency regulation

In a recent event, Coinbase, the largest cryptocurrency exchange in the United States, launched a legal offensive v. Securities and Exchange Commission (SEC) and Federal Deposit Insurance Corporation (FDIC).

The lawsuits filed in U.S. District Court in Washington seek to secure access to internal records that would shed light on what Coinbase describes as a “deliberate and coordinated effort” by regulatory agencies to pressure banks to deny crypto companies access to federal Bank System.

Coinbase Challenges SEC and FDIC

Coinbase insists that financial regulators, including the SEC, FDIC and Federal Reserve Board, have long sought to obstruct digital asset industry. The exchange is seeking transparency from the federal government, demanding transparency regarding the regulatory environment surrounding cryptocurrencies.

Coinbase’s legal action follows earlier attempts to obtain information through the Freedom of Information Act (FOIA) in connection with three SEC investigations into cryptocurrency companies and entrepreneurs between 2018 and 2024, including the recently concluded investigation into the Ethereum blockchain network.

By obtaining the requested information, the exchange hopes to better understand the SEC’s changing stance on digital assets over the years.

The company is also seeking detailed information about “standstill letters” sent by the FDIC to selected banks between March 2022 and May 2023 that requested a temporary halt to all cryptocurrency activities pending further guidance on the associated risks.

Following a report by the FDIC Office of Inspector General, these letters came to light, outlining the agency’s strategies to address cryptocurrency risks. Despite being legally entitled to the requested information under FOIA, Coinbase claims that both the SEC and FDIC have denied access.

The lawsuit against the SEC is the second case this month that the agency is facing legal action for failing to comply with FOIA requests. On June 6, the American Securities Exchange sued the SEC to obtain documents related to its investigations into record-keeping practices at major Wall Street firms.

Regulatory obstacles

Coinbase says the SEC and FDIC cited similar grounds for denying access to the requested information, including concerns that disclosure could jeopardize ongoing investigations and enforcement actions against other entities.

The exchange specifically refers to “Operation Chokepoint 2.0”, a term used in the cryptocurrency industry to describe what they see as a “coordinated effort” financial regulators to restrict or deny crypto companies access to banking services, similar to the original “Operation Chokepoint” initiative in 2013.

The lawsuits filed by Coinbase seek to determine whether top SEC and FDIC executives used coordinated pressure tactics to restrict the $2 trillion digital asset industry’s access to the federal banking system.

The exchange maintains that there is no consistent guidance from the SEC regarding the application of securities laws digital resources is harmful to industry participants.

While Coinbase hopes these lawsuits will provide insight into enforcement actions taken by the SEC against the exchange, which is currently pending in federal court in New York, there may be delays in obtaining the information sought.

The Government Accountability Office recently reported a significant backlog of FOIA requests due to the increasing volume and complexity of information sought by individuals and companies in recent years.

As Coinbase continues its legal battle, the cryptocurrency industry will be closely watching the outcome of these lawsuits as they have the potential to impact the regulatory landscape and drive greater clarity around cryptocurrency regulations and their use.

Featured image from DALL-E, chart from TradingView.com