J.W. Verret, a law professor and former advisor to the U.S. Securities and Exchange Commission (SEC), stated that it is unprecedented for the SEC to file a lawsuit against a company that petitioned the SEC to use its rulemaking process. Verret shared his statement with Federal Newswire during a July 2 interview.
"I asked the SEC for rulemaking on crypto, and a few months later Coinbase did their own request for rulemaking," said Verret. "Never before has it been the case that the SEC sued someone who requested specialized rules for their industry. That's never happened before, and it calls into question the legitimacy of this agency."
The crypto exchange Coinbase petitioned the SEC to use its official rulemaking process to create clear guidelines for the digital asset industry. The SEC denied the petition, but two SEC Commissioners dissented from the denial. According to a statement about their dissent, Commissioners Hester Peirce and Mark Uyeda said they believe the SEC needs to address the issues raised by new technologies by soliciting input from the public and then issuing guidance or engaging in rulemaking. The Commissioners said that while they acknowledge the SEC's authority to set the timing of its rulemaking agenda, they believe Coinbase's petition raised issues that need to be addressed. Addressing those issues is "a core part of being a responsible regulator," Peirce and Uyeda said. "The public benefits from open conversations about how new products and services can be offered within a sensible regulatory framework to meet the needs of our fellow Americans," according to Peirce and Uyeda.
In May, Coinbase filed a challenge to the SEC's denial of the rulemaking petition. Coinbase Chief Legal Officer Paul Grewal said in a post on X that the agency "cannot claim broad jurisdiction over a new industry without proper authorization from Congress and without making clear rules." Grewal said the SEC "is refusing" to provide the clear rules that the crypto industry has been asking for.
Coinbase stated that the SEC is putting digital asset firms in a "Catch-22" by demanding that firms comply with "an untenably expansive view of its statutory authority," suing firms that are not in compliance, and refusing to go through the rulemaking process that would make it possible to comply, according to a court filing. "This pattern of conduct is a purposeful effort to destroy an industry by demanding the impossible and prosecuting companies that fail to achieve it," Coinbase said.
According to Strand Consult Vice President Roslyn Layton, who wrote an opinion piece on this matter, the SEC has engaged in a series of "non-fraud enforcement actions" against crypto companies but has failed to issue "a single regulatory guideline registering a digital asset or determining whether it will be a security." Layton added, "There are no forms, no instructions and no published rules for registration." She further noted that while many companies are unable to fight these lawsuits due to large penalties sought by the SEC, those who have managed have exposed how truly bad faith at the SEC has become.
Verret is an associate professor of law at George Mason University, where he teaches Banking, Securities, and Corporation Law. He has previously served on the Investor Advisory Committee of the SEC and as Senior Counsel and Chief Economist for the U.S. House Financial Services Committee.
