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According to information obtained by FOX Business, Coinbase is launching a new legal offensive against the Securities and Exchange Commission and the Federal Deposit Insurance Corporation in an attempt to obtain documents regarding the agencies’ efforts to regulate cryptocurrencies.
According to a lawsuit filed Thursday in U.S. District Court in Washington, D.C., the largest cryptocurrency exchange in the United States is suing both regulators for access to internal records to uncover what it calls a “deliberate and coordinated effort” by the SEC, FDIC and other financial regulators to pressure banks to deny cryptocurrency companies access to the federal banking system.
“Financial regulators, including the SEC, FDIC and Federal Reserve, have for years attempted to undermine the digital asset industry by any means necessary,” a Coinbase spokesperson said in a statement to FOX Business. “We call for transparency from the federal government.”
The SEC and FDIC did not immediately respond to requests for comment.
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In this illustration, taken on March 4, 2022, a representation of cryptocurrency appears in front of the Coinbase logo. (REUTERS/Dado Ruvic/Illustration/File Photo/Reuters Photo)
The move comes after the exchange sought to obtain information through the Freedom of Information Act regarding three investigations the SEC conducted against crypto companies and entrepreneurs between 2018 and 2024, including the recently concluded investigation into the Ethereum blockchain network. Coinbase also requested details of so-called “suspension notices” the FDIC sent to several banks between March 2022 and May 2023, asking them to suspend crypto-related activity until it could provide further guidance on the risks involved.
The suspension notice came to light after the FDIC’s Office of Inspector General released a report in October detailing the agency’s strategy regarding cryptocurrency-related risks.
Coinbase says it was denied access to the information it requested by both the SEC and the FDIC, despite the public having a legal right under the Freedom of Information Act to request access to non-public records 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 a FOIA request: On June 6, the American Securities Association sued the SEC to obtain documents related to its investigation into the record-keeping practices of dozens of Wall Street firms, including Morgan Stanley, JPMorgan and Goldman Sachs.
In that case, the ASA was denied access on the grounds that it could compromise similar investigations and enforcement actions against other companies.
According to Coinbase’s lawsuit, the SEC and FDIC cited similar grounds for denying the information Coinbase is seeking, including whether the heads of both agencies are using coordinated pressure tactics to “crowd out” the $2 trillion digital assets industry, which is the lifeblood of the federal banking system.
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Coinbase was referring to so-called “Operation Chokepoint 2.0,” a colloquialism for what crypto industry insiders see as a concerted effort by financial regulators to make it harder, or in some cases outright denying, access to the banking services people need to survive in the U.S. economy. The “2.0” part is a nod to a 2013 campaign by federal regulators under the Obama administration to deny banking services to so-called “high-risk” companies, such as payday lenders that charge high interest rates on short-term loans.
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Other crypto participants claim that financial institutions have restricted or terminated their access to ties to digital assets.
On Wednesday, Eric Voorhees, founder of crypto exchange ShapeShift, complained to X that fintech company Revolut had shut down his account for “interacting with cryptocurrencies.”
Wyoming-based crypto bank Custody is currently appealing a judge’s decision granting the Federal Reserve discretion to deny the state-chartered bank access to so-called master accounts that would give the bank access to the central bank’s liquidity facilities and settlement services.
Meanwhile, Coinbase hopes that the case will help provide more clarity on the thinking behind the SEC’s enforcement action against the exchange, which is currently being sued in New York federal court, alleging that Coinbase violated securities laws by offering potential unregistered securities in the form of cryptocurrencies on its platform.
Coinbase argues that the SEC has refused to express a consistent position on how securities laws apply to digital assets, ultimately harming industry participants.
But it can take a long time for companies to get the information they’re looking for. According to a recent report from the U.S. Government Accountability Office, the amount of information companies and individuals are seeking has increased in recent years, resulting in a massive backlog of FOIA requests. In 2022, the government-wide backlog of requests exceeded 200,000 for the first time, according to the report.
