Coinbase Sues SEC and FDIC Over Crypto Asset Bank Shutdowns
Coinbase, a popular crypto exchange, has filed two lawsuits against the US Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC). These lawsuits were filed in the U.S. District Court for the District of Columbia. In the filings, Coinbase alleges that these federal agencies failed to comply with Freedom of Information Act (FOIA) requests. Additionally, Coinbase is seeking a court order to force institutions to disclose the requested information.
Coinbase Requests Disclosure of SEC’s Ethereum Investigation Documents
The exchange has hired a consulting firm, History Associates Inc., to submit FOIA requests. The lawsuits also allege that the SEC and FDIC have used regulatory measures to stifle the growth of the crypto industry by cutting off its access to the banking sector.
According to the complaint filed against the FDIC, “For nearly two years, a wide range of federal financial regulators, including the Securities and Exchange Commission, the FDIC, and the Federal Reserve Board, have used every regulatory tool at their disposal to attempt to cripple the digital asset industry.
The lawsuit also seeks to uncover Coinbase’s involvement in what the FDIC describes as an illegal scheme. That’s why FOIA requests to the SEC sought information about the agency’s stance on Ethereum (ETH). This investigation follows a recent lawsuit filed against the SEC by blockchain software firm Consensys.
Previously, in March 2023, Gurbir Grewal, Director of the SEC’s Enforcement Division, authorized an investigation into “Ethereum 2.0”. The investigation targeted individuals and organizations trading Ethereum. The SEC later announced that it had closed the investigation.
Coinbase CLO Paul Grewal took up the matter. In a post about X, he wrote: “We have requested documents from the SEC regarding closed investigations to shed light on how the SEC views its new, sweeping (and unlawful) authority. One of these recently closed investigations focused on ETH, which the SEC publicly declared not to be a security in 2018. Other investigations have been closed for years. However, the SEC has blocked our requests.”
History Associates specifically requested “access to all copies and records related to Ethereum’s transition to a proof-of-stake consensus mechanism.” However, the SEC denied this request and later denied the appeal.
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Exchange Wants Details of Another Case
Additionally, History Associates filed FOIA requests related to two completed investigations involving Zachary Coburn and Enigma MPC. Coburn, who founded the Ether Delta trading platform, settled with the SEC in 2018 after the SEC ruled that the platform should be registered as an exchange.
Enigma MPC, a data encryption startup, settled with the SEC in 2020 after being accused of offering unregistered securities. Although these cases were resolved years ago, the SEC denied FOIA requests. The agency argued that the disclosure “could reasonably be expected to harm relevant, ongoing and active enforcement proceedings.”
However, Coinbase argued: “The SEC’s rationale for withholding documents from investigations that resulted in settlements years ago was specifically crafted to defeat the legitimate purposes for which Coinbase sought the Coburn and Enigma MPC documents in the first place. This is the basis for the SEC’s blitzkrieg on the digital asset industry.” law. The SEC’s stonewalling violates its FOIA obligations.”
Arguments in the Lawsuit Against the FDIC
In a lawsuit filed against the FDIC, Coinbase revealed that History Associates requested information about the agency’s “pause letters,” which the FDIC issued between March 2022 and May 2023. These letters urged financial institutions to halt their expansion into crypto-related activities and provide additional information.
The FDIC Office of Inspector General, which is responsible for assessing the institution, reported that the FDIC did not provide a timeframe for reviewing this information. This created uncertainty and risk for the institutions involved. For this reason, Coinbase claims that these “pause letters” are not a real attempt to regulate crypto activities, but rather a strategy to stop them altogether, describing them as part of “Operation Choke Point 2.0.”
According to the complaint, “The Pause Letters were not a good faith effort to police the crypto-related activities of financial institutions. “These were a transparent effort to completely shut down these activities, which are part of a plan by the FDIC and other regulators to cut off digital asset companies from necessary banking services.”
History Associates requested copies of all “pause letters” cited in the OIG report, but the FDIC denied the request. The agency argued that disclosing the letters would “necessarily reveal information about the specific banks to which the letters were sent and interfere with the heart of communications between financial institutions and regulators.”
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