In their ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), Coinbase’s lawyers are claiming that the regulator overstepped its jurisdiction when it came after the exchange without support from Congress.
In a legal filing submitted on Wednesday, they point to the Supreme Court’s striking down of a recent Biden administration plan to write off hundreds of billions in student debt for some 40 million Americans.
In the case, Biden v. Nebraska, the Supreme Court said that the government lacked support from Congress on the decision; Congressional support is required for any decision that may have a high political or economic impact.
Using the case as a precedent, Coinbase’s lawyers argue that the SEC needed support from Congress before coming after the $1 trillion-plus crypto industry.
Last month, the SEC sued the two biggest crypto exchanges—Coinbase and Binance—for alleged violations of securities laws. These are among the most high-profile of a flurry of lawsuits filed against crypto companies by the regulator in recent months.
In Wednesday’s filing, Coinbase’s lawyers say their defense is “based on the Commission’s decision to assert new regulatory authority over digital asset platforms by retroactive enforcement action rather than notice-and-comment rulemaking” and “plainly has grounding in fact and law.”
The SEC’s clampdown
Four months later, Gary Gensler became chairman of the commission. His tenure has seen a marked decrease in trust between the industry and the regulator, with cryptocurrency advocates routinely criticizing Gensler’s “regulation-by-enforcement” strategy.
For his part, Gensler is unfazed by the criticism and has continued to maintain that existing securities laws are an adequate framework to regulate cryptocurrencies—because, he alleges, most cryptocurrencies, with the exception of Bitcoin, are securities.
The SEC’s lawsuit against Ripple is still ongoing, so it could be years before the suits against Binance and Coinbase are resolved.
Binance is an offshore exchange with no clear headquarters. However, Coinbase is an American company that’s publicly listed on the NASDAQ, a securities exchange overseen by the SEC—raising questions over why the leading U.S. securities regulator allowed the company to sell its stock to the public if its business was, as the SEC alleges, flagrantly violating securities laws.
Don’t expect any clear answers from the SEC, says the industry.