In Crypto-Friendly Decision, 3rd Circuit Sends Coinbase Petition Back to SEC

A Kramer Levin law firm post explains that a Third Circuit Court of Appeals panel unanimously held that the SEC violated the Administrative Procedure Act days before President Trump took office. The alert examines the ruling in Coinbase, Inc. v. SEC.

The SEC provided a one-paragraph explanation for its refusal to promulgate rules clarifying “how and when the federal securities laws apply to digital assets like cryptocurrencies and tokens.” 

The Third Circuit panel stopped short of ordering the SEC to grant a Coinbase rulemaking petition but remanded the matter back to the agency for a more extensive explanation.

The SEC, under Chairman-Designee Paul Atkins, is expected to be friendlier to the crypto industry than it was under the outgoing chairman. This may lead the agency to accept notice-and-comment rulemaking, which the industry seeks to obtain regulatory certainty.

The Third Circuit’s opinion sets a precedent that makes it much harder for agencies to ignore industry requests for rulemaking by citing generalized responses about resource allocation and preferences for incremental action.

The article quotes extensively from a concurring opinion by Judge Stephanos Bibas, which, according to the authors, may be seen “as a shot across the bow by a prominent and well-respected Trump appointee against federal agencies that cultivate regulatory uncertainty while bringing enforcement actions against regulated parties.”

According to Judge Bibas, the SEC’s “caginess” creates serious constitutional issues because the agency “repeatedly sues crypto companies for not complying with the law, yet it will not tell them how to comply.”