Court Orders “Evasive” SEC to Explain Itself In A Legal Victory For Coinbase

Another legal blow was delivered Monday against Gary Gensler’s Securities and Exchange Commission (SEC), as the agency’s era of ‘regulation through enforcement’ against the digital assets industry appears to be coming to an ignominious end.

The US Court of Appeals for the Third Circuit in Philadelphia yesterday ruled in favour of the cryptocurrency exchange Coinbase, which last year sued the SEC for refusing to provide explicit guidance to the crypto industry.

The panel of three judges found that the SEC’s dismissive response to Coinbase’s request for explicit guidance was unacceptable, writing in their ruling:

…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.

US Court of Appeals

However it wasn’t a complete victory for Coinbase — the judges declined to force the SEC to create crypto-specific rules, as Coinbase had requested.

Related: From Crypto Professor to Crypto Prosecutor: Gensler’s Final Swipe at The Industry

SEC Must Now Explain Why It Hasn’t Provided Better Guidance to Crypto Industry

You may be wondering why the judges didn’t just order the SEC to make crypto specific rules and clarify the whole crypto situation once and for all. Essentially, the court didn’t have the power to do that in this case. 

One of the judges on the panel, Judge Thomas Ambro, said the SEC can only be forced to make rules against its will if there’s been an extreme delay in creating those rules and the delay has “endangered human lives”. While many of us might feel dead inside after years of waiting for SEC legal cases to be resolved (I’m looking at you XRP Army), the court apparently doesn’t think this counts.

Despite not requiring the SEC to make crypto-specific rules, this ruling is still an important victory for the crypto industry as it forces the SEC to explain why it has for so long refused to provide proper legal guidance.

Another of the panel’s judges, Judge Stephanos Bibas, warned in his written opinion that the SEC must provide a much better explanation for its refusal to provide meaningful guidance than it has done in the past:

…it [the SEC] should not give another poor explanation in an already-long line of them.

Judge Stephanos Bibas

Crypto Industry Celebrates Important Victory

Responding to the ruling, Coinbase’s Chief Legal Officer, Paul Grewal posted on X / Twitter saying that “we appreciate the Court’s careful consideration”.

Other high-profile crypto industry leaders were more exuberant over the ruling — Ripple’s Chief Legal Officer, Stuart Alderoty congratulated Coinbase on their win and suggested Gary Gensler’s decision to provide vague guidance and aggressively enforce any breaches “was a (not so) covert attempt to ban the industry outright”, adding that in his opinion this course of action was “shameful”.