Coinbase sued the SEC and FDIC

Crypto Sage June 28, 2024
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Coinbase Sues SEC and FDIC for Failing to Comply with FOIA Requirements, Making Decisions Detrimental to the Crypto Industry

According to Fox Business journalist Eleanor Terrett, cryptocurrency exchange Coinbase has hired consulting firm History Associates Inc. to file a lawsuit against the U.S. Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) for failing to comply with the U.S. Freedom of Information Act (FOIA) requirements.

Coinbase accuses these federal financial regulatory agencies of “trying every possible way” to eliminate the crypto sector from the banking system in their complaints.

The lawsuit, filed in the District Court of Columbia, states:

“For nearly two years, a series of federal financial regulatory agencies—including the SEC, FDIC, and Federal Reserve (FED)—have used every regulatory measure available as a tool to try to cripple the digital asset industry. This FOIA lawsuit aims to bring to light the FDIC’s role in that unlawful scheme.”

Details of the Demands in the Complaint Sent to the SEC

FOIA is a federal information freedom law requiring U.S. government agencies to disclose fully or partially unpublished information/documents to ensure transparency in activities. Under FOIA, the public or any organization can request any federal agency to provide information/records.

Therefore, in the lawsuit by History Associates Inc., hired by Coinbase, it argues that the SEC has not adhered to the legal rights under FOIA regarding cases related to Ethereum (ETH).

Demands for SEC to Comply with FOIA:

The lawsuit by History Associates Inc. demands that the SEC grant them “access to all copies and records” of investigations related to Ethereum since The Merge—the transition of ETH’s operating mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS), including:

  • The case where the SEC charged Zachary Coburn, the founder of the decentralized crypto token exchange platform EtherDelta, for operating an unregistered securities exchange and acting as a secondary market for ERC-20 tokens—settled with the SEC in 2018.
  • The case where the SEC sued Enigma MPC, a data encryption startup accused by the agency of offering securities tokens—settled with the SEC in 2020.
  • The case where the SEC sued ConsenSys, the blockchain infrastructure company behind the MetaMask crypto wallet, for “acting as a securities service provider,” specifically regarding Ethereum. However, three months after issuing the Well Notices, the SEC ended the investigation, declaring it would no longer pursue allegations that selling ETH constituted a securities transaction.

However, all the above requests from the consulting firm hired by Coinbase were denied by the SEC, citing that “disclosure could negatively impact ongoing enforcement proceedings.” Despite Coinbase stating in the complaint that their purpose is to “understand the legal perspectives the SEC used in past cases to form a basis for compliance.”

Demands for FDIC to Comply with FOIA:

History Associates Inc. requests that the FDIC provide copies of “cease and desist letters” related to all crypto investigations from March 2022 to May 2023 sent to certain financial institutions. They claim that these “letters” are part of a new Operation Choke Point 2.0 campaign aimed at restricting crypto activities.

As a result, the FDIC continues to refuse to disclose the “cease and desist letters” as it “infringes upon the content of communications between financial institutions and their regulators.”

Not the First Time Coinbase Has Sued the SEC

Coinbase previously sued the SEC in April 2023, demanding the court compel the agency to issue formal regulatory guidelines for the digital asset sector. The two sides have clashed over the years regarding the necessity of establishing regulations.

Coinbase first requested that the SEC issue a formal regulatory process to “provide guidance for the crypto sector” in July 2022.

This latest legal action is part of what History Associates Inc. describes in documents as “Coinbase’s ongoing conflict with U.S. regulators.”

Paul Grewal, Chief Legal Officer at Coinbase, stated in a post on X (formerly Twitter):

“Financial regulators have used various tools at their disposal to try to cripple the digital asset industry…This is not how to regulate. And this is not how to run a transparent government.”

In the past, Coinbase has been involved in numerous lawsuits, including class action suits. Generally, these suits accused the exchange of harming customers by offering securities.

Coinbase is still embroiled in a separate battle with U.S. authorities. The SEC continues to use securities arguments to accuse the exchange. In its latest move, Coinbase has filed an appeal against the SEC, demanding that the securities regulator issue clear crypto regulations.

Despite the legal hurdles, Coinbase has seen substantial growth in the first quarter of the year. According to the latest financial report, the exchange achieved “record earnings” in Q1 2024 with $1.6 billion in revenue, a 72% increase from the previous quarter.

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