Coinbase Pushes CFTC for Documents to Defend Against SEC

Coinbase has filed a petition in federal court seeking to compel the Commodity Futures Trading Commission (CFTC) to provide communication records with several crypto token issuers. This request is crucial for Coinbase as it aims to defend itself against a lawsuit filed by the Securities and Exchange Commission (SEC).

In a motion to compel dated October 1, Coinbase requested the CFTC’s communications regarding the issuers of 12 cryptocurrencies that the SEC claims are unregistered securities sold by Coinbase. The exchange is also asking for documents related to the regulatory authority of both the SEC and CFTC over digital assets, especially concerning the prevailing market uncertainty around these regulations.

Coinbase asserts that the information from the CFTC is vital for its defense against the SEC’s allegations. The data will help the exchange evaluate whether the 12 cryptocurrencies in question meet the criteria for being classified as securities.

In July, Coinbase disclosed that it had already subpoenaed the CFTC for this information, marking its second attempt after a more expansive subpoena issued a month earlier. However, Coinbase claims that the CFTC “has stonewalled” its requests, stating that the agency “hasn’t even conducted a single search” for the necessary documents. This assertion comes despite a New York federal judge, Katherine Folk Failla, ordering the SEC to produce similar relevant information.

Coinbase’s Argument

Coinbase elaborated on the historical context, explaining that both the SEC and CFTC had solicited engagement with digital asset issuers and market participants to enhance their understanding of the industry and its regulatory status prior to the SEC lawsuit.

“Coinbase is entitled to such highly relevant information in the CFTC’s possession,” the exchange stated in its filing.

The exchange noted that the CFTC rejected its first subpoena on grounds of overbreadth, burden, and privilege. However, the CFTC expressed willingness to reconsider the subpoena if it were narrowed down. Unfortunately, Coinbase alleges that the CFTC has also dismissed its second subpoena, citing that it was “overly broad, vague, and would place an undue burden on the Commission.”

In its motion, Coinbase contended that the CFTC had not provided sufficient justification for the claimed burden of locating the information. The exchange argued that “no conceivable privilege could apply to them” since the communications in question were with external parties.

CFTC’s Silence

As of now, the CFTC has not publicly responded to requests for comments regarding this situation. The lack of transparency from the CFTC adds another layer of complexity to Coinbase’s legal battle.

In June 2023, the SEC initiated a lawsuit against Coinbase, accusing the crypto exchange of functioning as an illegal broker, securities exchange, and clearing agency. In its filing, the SEC alleged that 13 tokens offered by Coinbase are, in fact, unregistered securities. The tokens named in the lawsuit include:

• Solana (SOL)
• Cardano (ADA)
• Polygon (MATIC)
• Filecoin (FIL)
• The Sandbox (SAND)
• Axie Infinity (AXS)
• Chiliz (CHZ)
• Flow (FLOW)
• Internet Computer (ICP)
• Near (NEAR)
• Voyager Token (VGX)
• Dash (DASH)
• Nexo (NEXO)

The Stakes for Coinbase

As the legal landscape evolves, Coinbase is facing significant challenges. The exchange’s attempts to obtain information from the CFTC are not just about protecting its interests; they also reflect a larger struggle for regulatory clarity in the rapidly changing world of cryptocurrency.

The outcome of this case could have far-reaching implications for Coinbase and other players in the crypto market, particularly concerning how digital assets are classified and regulated.

Coinbase’s motion to compel the CFTC to disclose relevant communications underscores the ongoing legal battles surrounding cryptocurrency regulation in the United States. As the exchange prepares to defend itself against the SEC’s allegations, the importance of securing information from the CFTC cannot be overstated.

This case is emblematic of the broader struggles within the cryptocurrency industry, where regulatory clarity is desperately needed. The implications of these proceedings may significantly shape the future of digital assets and how they are treated under U.S. law.