Coinbase Scores Another Win Against 'Arbitrary and Capricious' SEC Order



A panel of federal appeals court judges in Philadelphia dealt another blow to the SEC’s crypto regime on Monday, emerging as the latest prominent court to question how the federal agency has navigated its regulation of digital assets. 

The U.S. Court of Appeals for the Third Circuit ruled today in favor of Coinbase, which sued the SEC last year over the agency’s refusal to explicitly lay out its crypto policy. Instead of putting forth crypto-specific rules, the SEC has instead sporadically sued crypto firms over the last six-odd years in a pattern that has been disparagingly dubbed “regulation by enforcement.” 

Today a three-judge panel, comprised of two Democrats and one Republican, ruled that the SEC’s dismissive response to Coinbase’s request for crypto-specific rulemaking was unacceptable. 

“Because we believe the SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition in part and remand to the SEC for a more complete explanation,” today’s order reads. 

The judges added that they declined, however, to force the SEC to create crypto-specific rules, as Coinbase had requested. 

According to Judge Thomas Ambro, a Clinton-era Democrat who wrote Monday’s opinion, previous case law established that an agency like the SEC could only be forced to create rules against its will if an extreme delay in creating those rules “endangered human lives”—a requirement clearly not met by crypto-related regulations. 

So the SEC doesn’t have to issue new crypto rules now, but it must explain to Coinbase in much greater detail why it has, thus far, refused to do so. 

“Rather than force the agency to make a rule, we order it to explain its decision not to,” Judge Stephanos Bibas, a Republican appointed to the court by Donald Trump, wrote Monday in a concurring opinion. “Indeed, a rule may not prove necessary to solve the problems here; the agency could just state its position on crypto assets unequivocally.” 

Bibas warned the SEC that its explanation should tackle the question head on and not avoid it.

“It should not give another poor explanation in an already-long line of them,” he said of the agency. 

Coinbase Chief Legal Officer Paul Grewal celebrated the ruling in a post on X (formerly Twitter), taking no apparent issue with the court’s refusal to force the SEC to create new crypto rules. 

“We appreciate the Court’s careful consideration,” Grewal wrote. 

When asked when the SEC plans to release an explanation of its crypto policies, or what such an explanation might look like, an agency spokesperson told Decrypt that those matters are currently being considered internally. 

“We’re reviewing the decision and will determine next steps as appropriate,” the spokesperson said.

For years, SEC chair Gary Gensler has insisted that his agency’s crypto policies need no explanation given their supposedly self-evident compliance with existing securities laws. 

That stance has made him plenty of enemies in the sector. Further, a recent string of federal court rulings appear to have begun to take issue with the chair’s narrative, coloring the SEC’s treatment of crypto firms as unusual and worthy of legal review.

Those potential legal cracks in the SEC’s crypto regime have come just days before it is likely to collapse from the shift in political tides. Gensler will resign on January 20, the same day as President-elect Donald Trump’s inauguration. The chair’s likely replacement, former SEC commissioner Paul Atkins, is a crypto enthusiast who is almost certain to reverse the agency’s aggressive treatment of digital assets.





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