SEC chair, lawmakers are ‘gaslighting,’ CryptoLaw founder says

CryptoLaw founder John E. Deaton is clapping back at U.S. Securities and Exchange Commission (SEC) chair Gary Gensler after a proposal from Coinbase to create new crypto-specific rules was rejected.

This week, the SEC rejected Coinbase’s 30-page “petition for rulemaking.” Gensler contends that the current securities framework adequately governs crypto asset securities and is actively addressing the crypto securities markets through rulemaking and enforcement. 

The SEC’s decision prompted Coinbase to file an immediate court challenge. The company has sought a review from the U.S. Court of Appeals for the Third Circuit, asserting that the SEC’s refusal to engage in rulemaking was arbitrary. 

The SEC argues that it is already addressing the crypto securities markets through rulemaking and enforcement actions. 

Deaton took issue with Gensler’s comments on social media, accusing the SEC chair of “gaslighting the American people.”

According to Deaton, the Coinbase petition aligns with Gensler’s previous acknowledgment of crypto’s unique nature and the current regulatory gap.

Deaton references the Hinman Speech emails, indicating others shared this perspective. 

The political reversal, Deaton says, is concerning. The SEC is meant to be independent, but it’s just being weaponized, he claims.

This highlights the ongoing conflict between cryptocurrency firms and regulators regarding the necessity of specific regulations in the crypto space.

Deaton also railed against JPMorgan Chase CEO Jamie Dimon and Massachusetts Sen. Elizabeth Warren for the anti-crypto stance.

“If I were the government, I would close it down,” Dimon recently said.

SEC vs. Coinbase

On Dec. 15, Coinbase chief legal officer Paul Grewal issued a prior warning that legal action would be pursued by Coinbase.

Coinbase has officially initiated a legal challenge against the SEC’s rejection of its 2022 rulemaking petition. 

Expressing the company’s commitment, Coinbase Chief Legal Officer Paul Grewal shared the filing on X, describing the decision as “arbitrary and capricious.” 

In the petition for review, Coinbase argues that the SEC’s denial constitutes an “abuse of discretion and contrary to law, in violation of the Administrative Procedure Act.” Coinbase contends that the SEC’s reluctance to participate in rulemaking while enforcing regulations through actions exceeding its statutory authority contradicts the APA and fundamental principles of fairness.

In July 2022, Coinbase filed a petition, contending that the crypto industry requires an “updated rulebook” for guidance, emphasizing the need for clarity for non-securities crypto assets. 

Following the SEC’s lack of response to the petition and Coinbase’s receipt of a Wells Notice, the exchange escalated the matter by filing a writ of mandamus with the Third Circuit, concurrently submitting a petition for review in the same docket.

Earlier this year, Coinbase made two requests for regulatory clarity from the the agency, both of which were declined. 

Simultaneously, the SEC has an ongoing lawsuit against Coinbase, alleging the operation as an unregistered exchange and the offering and selling of unregistered securities, including targeting its staking product.

Despite these legal developments, Gensler agreed with the decision to deny Coinbase’s rulemaking petition, stating that ongoing initiatives would inform potential alterations to the existing regulatory framework. 

Grewal countered, asserting that industry observers acknowledge the lack of clarity in the law and recognize the need for further work in the crypto sector.