SEC Faces Judicial Fallout as Chair Gensler’s Term Ends

The SEC v Coinbase (COIN) case took an unwelcome turn for the SEC, with the Third Circuit Court ruling in Coinbase's favor.

The United States Securities and Exchange Commission (SEC) has faced backlash from a Third Circuit Court ruling in favor of Coinbase (NASDAQ:COIN) in the SEC v Coinbase case.

Coinbase's Chief Legal Officer Paul Grewal announced the decision on Twitter, highlighting that the Third Circuit Court had ordered the SEC to provide a "more complete explanation" for its order.

“We just won our petition for a writ of mandamus at the Third Circuit. Rebuking SEC for its order denying our rulemaking petition, the Court held that the “SEC’s order was conclusory and insufficiently reasoned, and thus arbitrary and capricious, we grant Coinbase’s petition in part and remand to the SEC for a more complete explanation.”

The court's decision follows Coinbase's filing with the Third Circuit Court in August 2022, seeking to overturn the SEC's denial of its application to have the agency initiate rulemaking proceedings on the classification of digital assets.

Coinbase had applied to the SEC in September 2021 to have the agency initiate rulemaking proceedings on the classification of digital assets. The SEC denied the application in April 2022 without providing a detailed explanation.

Coinbase then filed a petition for a writ of mandamus with the Third Circuit Court, arguing that the SEC's denial was arbitrary and capricious and that the court should order the agency to provide a more complete explanation for its decision.

The Third Circuit Court agreed with Coinbase and remanded the SEC to explain itself further. The court also noted that the SEC should not give “yet another poor explanation in an already-long line of them.”

“But sporadically enforcing ill-fitting rules against crypto companies that are trying to follow the law goes way beyond fighting fraud. It targets a whole industry and risks de facto banning it. On remand, the SEC must grapple with that problem.”

Ripple's Chief Legal Officer Stuart Alderoty shared excerpts from the court ruling on Twitter, highlighting the court's conclusion that the SEC was attempting to ban the crypto industry through selective enforcement of securities laws.

“Huge congratulations to Paul Grewal and Coinbase for their win today. In Gensler’s final days, his anti-crypto crusade is imploding, and a federal appeals court has laid bare what the industry has said for years: his selective enforcement of securities laws was a (not so) covert attempt to ban the industry outright. Shameful.”

The latest court ruling could pressure the SEC to reconsider its appeal in the Ripple case. Amicus Curiae attorney John E. Deaton recently assessed the upside for an SEC appeal, saying,

“Hence, my point: appealing the Ripple ruling is a fool’s errand and I think Paul Atkins will see it that way.”

XRP Price Trends: Legal Battle Drives Sentiment XRP advanced by 0.80% on Monday, January 13, partially reversing Sunday's 2.81% loss to close at $2.5245. Notably, XRP outperformed the broader crypto market, which declined by 0.91% to a total market cap of $3.20 trillion.

XRP's price action is closely tied to the developments in the Ripple case. If the SEC files its opening brief and convincingly challenges the Programmatic Sale of XRP ruling, XRP could drop below $2.

On the other hand, if the agency withdraws its appeal, XRP could break above its 2018 record high of $3.5505.