Coinbase Sues SEC and FDIC Over Lack of Transparency

Coinbase has filed a lawsuit against the SEC and the FDIC over their attempts to “cut off” the crypto industry from the banking sector, according to The Block.

The exchange accused the regulators of not adhering to the Freedom of Information Act (FOIA). These requests allow the public to demand documents from any federal agency.

Coinbase is represented by the consulting firm History Associates. Two separate lawsuits will be heard by the District of Columbia court.

“For nearly two years, a wide range of regulators, including the SEC, FDIC, and the Federal Reserve, have used all available tools to try to ‘cripple’ the digital asset industry,” the lawsuit states.

Regulators declined to comment.

Concerns with the SEC

In FOIA-related requests to the SEC, the exchange sought to understand the Commission’s stance on Ethereum. ConsenSys, which filed a lawsuit against the agency in May, noted that in March 2023, the agency initiated an investigation into “Ethereum 2.0” concerning firms and individuals who bought and sold ether. It was later revealed that the case was closed.

History Associates requested “access to all copies and records concerning Ethereum’s transition to the Proof-of-Stake consensus mechanism.” The organization stated that the SEC rejected this request and then the appeal.

The firm representing Coinbase also filed similar requests regarding two already closed investigations. One involved Zachary Coburn, and the other concerned Enigma MPC. In both cases, the agency managed to reach a settlement after accusations of securities law violations.

History Associates reported that after filing appeals, the agency rejected the requests, stating that disclosure “could reasonably be expected to harm related ongoing enforcement proceedings.”

“The Commission’s rationale for withholding data […] is aimed at obstructing legitimate efforts […] to understand the regulatory perspective underlying the SEC’s enforcement blitz against the digital asset industry. The agency’s evasion violates its FOIA obligations,” the document mentions.

Issues with the FDIC

In the complaint against the FDIC, Coinbase stated that History Associates submitted a FOIA request regarding the agency’s “pause letters.”

According to a report by the Corporation’s Office of Inspector General (OIG) last year, from March 2022 to May 2023, the regulator began sending such notifications to financial institutions, requesting them not to expand crypto-related activities and to provide more information.

The FDIC did not specify timelines for reviewing this data, which could create uncertainty and risk, the inspector general’s report noted.

In its complaint, Coinbase claimed that this initiative was part of a new “Choke Point 2.0” operation.

“The pause letters were not a good faith attempt to oversee crypto-related activities of financial institutions. They were a transparent attempt to completely shut down this business — an integral part of the FDIC and other regulators’ scheme to cut off digital asset firms from essential banking services,” the complaint states.

History Associates submitted FOIA requests asking for copies of all pause letters mentioned in the OIG report. The FDIC refused to provide them. Later, the agency stated that disclosure “would necessarily reveal information about specific banks and intrude into the substance of communications between institutions and their supervisory authority.”

Debate Over Regulations

Coinbase has been pushing the SEC for clear industry rules in recent years. In July 2022, the company submitted a petition to the Commission, and by April 2023, it had already taken the matter to court.

The agency’s head, Gary Gensler, dismissed Coinbase’s claims, asserting that existing laws apply to the sector. In March, the platform appealed to a higher court to compel the regulator to develop rules.

The SEC has leveled various accusations, such as operating as unregistered exchanges, against several companies, including Binance, Coinbase, and Kraken.

Back in March, the Crypto Innovation Council, venture firm Paradigm, the U.S. Chamber of Commerce, and others supported Coinbase in its demand for the SEC to establish rules for the digital asset industry.