Paradigm Files Amicus Brief Supporting Coinbase’s Writ of Mandamus

May 10, 2023 | Rodrigo Seira

TLDR: Today Paradigm filed an amicus brief in support of Coinbase’s lawsuit that seeks to compel the SEC to respond to the company’s pending rulemaking petition. As we’ve stated before, unless the SEC first issues practical guidance, Chair Gensler’s refrain that crypto projects, including digital asset exchanges, should just “come in and register” is an insincere admonition that is impossible to comply with. The SEC has a legal obligation to put the crypto industry on notice, allow individuals to conform their conduct to the law, and subject its views to the crucible of judicial review. By refusing to do so, the agency effectively paralyzes a major and growing industry.

Last summer, Coinbase submitted a petition to the SEC asking the agency to “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.” The petition is part of Coinbase’s extensive efforts to engage with regulators and lays out with technical detail various issues that must be clarified in order to provide a practical regulatory framework for crypto.

However, instead of engaging in good faith with Coinbase and the crypto industry, the SEC is flouting the bedrock principles of administrative law by refusing to formally tell both the digital-assets industry and the federal judiciary what it thinks the law requires of digital-asset trading platforms. Instead, the SEC has chosen to regulate through press releases, “office hour” videos posted on Twitter, cherry-picked enforcement actions, and thinly veiled threats.

For example, SEC Chair Gary Gensler has testified to Congress that “[t]he crypto exchanges should come in and register” and “work with the SEC”—without explaining how or why. But until the SEC engages in the rulemaking Coinbase has requested, the digital-assets industry is stuck in limbo, simultaneously told to “come in and register” yet having no effective means of doing so.

That is not how administrative law is supposed to work. As Coinbase’s petition demonstrates, century-old securities laws do not provide an obvious fit for digital assets and their exchanges. If the SEC wants companies to “come in and register,” then it must explain, subject to judicial review, how it thinks laws passed in the 1930s apply to digital assets today.