Regulation
Coinbase Files Lawsuit Against SEC, FDIC Over Debanking Crypto Firms
Coinbase, a prominent crypto exchange, has initiated two lawsuits against the U.S. Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC). These lawsuits was filed in the U.S. District Court for the District of Columbia. In the filings, Coinbase claims that these federal agencies have failed to comply with Freedom of Information Act (FOIA) requests. Moreover, Coinbase is seeking a court order to compel the agencies to release the requested information.
Coinbase Seeks Disclosure Of SEC’s Ethereum Investigation Documents
The exchange has engaged History Associates Inc., a consulting firm, to submit the FOIA requests. Furthermore, the lawsuits allege that the SEC and FDIC have been using regulatory measures to hinder the growth of the crypto industry by cutting off its access to the banking sector.
According to the complaint against the FDIC, “For nearly two years, a wide array of federal financial regulators — including the Securities and Exchange Commission, the FDIC, and the Federal Reserve Board — have used every regulatory tool at their disposal to try to cripple the digital-asset industry.”
Furthermore, the lawsuit aims to uncover the FDIC’s involvement in what Coinbase describes as an unlawful scheme. Hence, the FOIA requests submitted to the SEC sought information on the agency’s stance on Ethereum (ETH). This inquiry follows a recent lawsuit by blockchain software firm Consensys against the SEC.
Earlier, in March 2023, SEC’s Director of the Division of Enforcement, Gurbir Grewal, authorized an investigation into “Ethereum 2.0”. The probe targeted individuals and entities trading Ethereum. The SEC later stated it was closing the investigation.
Coinbase CLO Paul Grewal opened up on the matter. In a post on X, he wrote, “We asked the SEC for documents about closed investigations to shed light on how the SEC views its newfound, sweeping (and unlawful) authority. One of those investigations, which only recently closed, focused on ETH, which the SEC publicly announced is not a security in 2018. And the other investigations have been closed for years. But the SEC stonewalled our requests.”
History Associates specifically requested “access to all copies and records concerning Ethereum’s shift to a proof-of-stake consensus mechanism.” However, the SEC denied this request and subsequently denied the appeal.
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Exchange Asks For Details On Other Case
Additionally, History Associates filed FOIA requests concerning two completed investigations involving Zachary Coburn and Enigma MPC. Coburn, who founded the Ether Delta trading platform, settled with the SEC in 2018 after the SEC determined that the platform should have been registered as an exchange.
Enigma MPC, a data encryption startup, settled with the SEC in 2020 after being accused of offering unregistered securities. Despite these cases being settled years ago, the SEC denied the FOIA requests. The agency argued that disclosure “could be reasonably expected to cause harm to the related, ongoing and active enforcement proceedings.”
However, Coinbase argued, “The SEC’s rationale for withholding documents from investigations that concluded in settlements years ago is tailor-made to frustrate the legitimate purposes for which Coinbase sought the Coburn and Enigma MPC documents in the first place — to understand the view of the law that underlies the SEC’s enforcement blitzkrieg against the digital-asset industry. The SEC’s stonewalling violates its FOIA obligations.”
Arguments In Lawsuit Against FDIC
In the lawsuit against the FDIC, Coinbase revealed that History Associates had requested information on the agency’s “pause letters.” The FDIC issued these letters between March 2022 and May 2023. These letters urged financial institutions to halt their expansion into crypto-related activities and provide additional information.
The FDIC’s Office of Inspector General, responsible for evaluating the agency, reported that the FDIC did not provide a timeframe for reviewing this information. This created uncertainty and risk for the institutions involved. Hence, Coinbase contends that these “pause letters” were not a genuine attempt to supervise crypto activities but rather a strategy to halt them altogether, describing it as part of “Operation Choke Point 2.0.”
According to the complaint, “The Pause Letters weren’t a good-faith effort to supervise the crypto-related activities of financial institutions. They were a transparent effort to stop those activities altogether — part and parcel of the FDIC’s and other regulators’ scheme to cut off digital-asset firms from necessary banking services.”
History Associates requested copies of all the “pause letters” mentioned in the OIG report, but the FDIC denied the request. The agency argued that disclosing the letters would “necessarily reveal information about the particular banks that the letters were sent to and would intrude into the heart of the communications between financial institutions and their regulator.”
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