A judge just ordered the U.S. Securities and Exchange Commission (SEC) to craft a more thorough response to a petition from Coinbase.
In July 2022, the top US crypto exchange filed a petition with the SEC to create a new regulatory framework for digital assets, but the regulator rejected the proposal with a single-paragraph notice in December 2023, saying that it disagreed with the idea that securities laws do not apply to the crypto industry.
The SEC also argued that it had other regulatory priorities and discretion over the “timing and priorities of its regulatory agenda.”
Coinbase, unsatisfied with the response, petitioned a court to review the SEC’s decision. The exchange also asked the court to order the SEC to institute a rulemaking proceeding on digital assets.
In a new ruling filed this week, Circuit Judge Thomas L. Ambro declined to order the SEC to make new rules for digital assets. He did, however, tell the SEC to expand on its response to Coinbase’s petition.
“The SEC’s order was arbitrary and capricious because it was conclusory and insufficiently reasoned. We thus grant Coinbase’s petition in part. The remedy is not at this stage to order the SEC to institute rulemaking proceedings but to remand to the agency for a sufficiently reasoned disposition of Coinbase’s petition.”
Paul Grewal, Coinbase’s chief legal officer, praised the ruling and likened it to a football referee being required to explain a penalty flag.
“You can’t just throw the yellow flag and penalize. You have to lay out the why and what happens next: offsides, number 85, 10-yard penalty, repeat first down.”
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