Regulation
Coinbase Sues SEC, FDIC Over Cryptocurrency Regulation Information
Faryar Shirzad, Chief Policy Officer at Coinbase, discusses the impact of custody on “The Claman Countdown.”
Coinbase is launching a new legal offensive against Securities and Exchange Commission and the Federal Deposit Insurance Corporation to acquire documents related to the agencies’ approaches to regulating cryptocurrencies, FOX Business has learned.
According to lawsuits filed Thursday In a Washington, D.C. district court, the largest U.S. cryptocurrency exchange is suing both regulators to gain access to internal records and shed light on what it describes as a “deliberate and concerted effort by the SEC, FDIC and other financial regulators” to pressure banks deny crypto firms access to the federal banking system.
“For years, financial regulators – including the SEC, FDIC and Federal Reserve Board – have used every tool at their disposal to try to cripple the digital asset industry,” a Coinbase spokesperson said in a statement to FOX Business. “We demand transparency from our federal government.”
The SEC and FDIC did not immediately respond to requests for comment.
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A representation of the cryptocurrency is seen in front of the Coinbase logo in this illustration taken on March 4, 2022. (Reuters/Dado Ruvic/Illustration/File Photo / Reuters Photos)
The move comes following the exchange’s attempts to recover information through the Freedom of Information Act regarding three SEC investigations into cryptocurrency companies and entrepreneurs between 2018 and 2024, including the recently closed investigation into the Ethereum blockchain network. Coinbase also requested details of so-called “pause letters” sent by the FDIC between March 2022 and May 2023 to a handful of banks asking them to suspend any cryptocurrency-related activity until it could provide further guidance on the risks associated with it .
The pause letters were revealed following an October report from the FDIC’s Office of Inspector General that detailed the agency’s strategies related to risks associated with cryptocurrencies.
Coinbase says it was denied access to the information requested by both the SEC and the FDIC, even though it was legally entitled to do so under the Freedom of Information Act, which allows the public to request access to non-public documents from federal agencies.
The U.S. Securities and Exchange Commission (SEC) headquarters in Washington, DC, on January 28, 2021. (SAUL LOEB/AFP via Getty Images / Getty Images)
This is the second time this month that the SEC has been sued for failing to comply with FOIA requests. On June 6, the American Securities Association subpoenaed the agency for documents related to its investigations into recordkeeping practices at dozens of Wall Street companies including Morgan Stanley, JPMorgan and Goldman Sachs.
In that case, the ASA was denied access on the grounds that doing so could jeopardize similar investigations and enforcement actions against other companies.
According to Coinbase’s lawsuits, the SEC and FDIC are using similar reasons to deny Coinbase the information it is seeking, including whether agency leaders are using coordinated pressure tactics to “stifle” the $2 trillion digital asset industry of dollars from the lifeblood of the federal government. banking system.
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Coinbase is referring to the so-called “Operation Chokepoint 2.0,” a colloquial term used by cryptocurrency industry participants to refer to what they see as a concerted effort by financial regulators to make it difficult or, in some cases, outright deny crypto firms access to the banking services they need to exist in the U.S. economy. The “2.0” part is a nod to a 2013 campaign by federal regulators in Obama administration deny banking services to so-called “high-risk” businesses, such as short-term lending institutions, which charge high interest for short-term loans.
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Other cryptocurrency participants have said that financial institutions have limited or terminated their access for pairing with digital assets.
On Wednesday, the founder of cryptocurrency exchange Shapeshift, Erik Voorhees, took to X to complain that fintech firm Revolut had closed his account due to “interaction with cryptocurrencies.”
Wyoming-based crypto bank Custodia is currently appealing a judge’s decision to allow the Federal Reserve discretion to deny it access to a so-called master account that would give the state bank access to the central bank’s liquidity facilities and payment services.
Meanwhile, Coinbase hopes its lawsuits will help provide a clearer picture of the SEC’s thinking behind its enforcement action against the exchange, which is currently under litigation in a New York federal court as the SEC claims that Coinbase is violating securities laws by offering potential non-nominal titles in the form of cryptocurrencies on its platform.
Coinbase says the SEC has refused to articulate a coherent view on applying securities laws to digital assets, which is ultimately hurting industry participants.
However, the company may wait a long time to get the information it is looking for. According to a recent report from the Government Accountability Office, there is a huge backlog of FOIA requests due to the increased volume of information sought by companies and individuals in recent years. The report shows that in 2022, the government-wide request backlog exceeded 200,000 requests for the first time.