The U.S. Court of Appeals for the Third Circuit has asked the SEC to clarify its refusal to establish clear regulations for cryptocurrencies. This request follows Coinbase’s appeal after receiving a Wells Notice from the SEC in March 2023, which accused the exchange of violating securities laws.

One judge emphasized that the court is not forcing the SEC to create new rules but wants an explanation for its inaction. Another judge warned the SEC to avoid providing a weak justification, as it has done previously.

The conflict between the SEC and Coinbase began when the SEC issued the Wells Notice, claiming Coinbase’s staking services and asset listings were in violation of securities regulations. Coinbase responded by asserting that its operations were legal and sought to engage with the SEC to clarify the Wells Notice and establish clear regulations.

However, the SEC argued that existing securities laws were adequate for regulating crypto and subsequently filed a lawsuit against Coinbase in June 2023. Recently, Coinbase achieved a temporary victory when a ruling froze the case, citing the lack of consensus among various courts regarding whether crypto qualify as securities.

The case will now be reviewed by an appeals court to determine if it should proceed in a district court. This recent development poses a significant challenge for the SEC, especially as it comes just before the end of Gary Gensler’s term as SEC Chair. Coinbase’s Legal Head, Paul Grewal, views this outcome as a win for the exchange.

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