- Coinbase has initiated legal proceedings against the SEC and FDIC over non-compliance with FOIA requests.
- The FOIA allows for the disclosure of federal information unless it pertains to sensitive categories like national security or trade secrets.
- Paul Grewal, Chief Legal Officer at Coinbase, argues that this opacity undermines fair regulation and governmental transparency.
Coinbase demands transparency from US financial regulators through FOIA lawsuits, challenging the SEC and FDIC’s reluctance to disclose crucial crypto-related information.
Coinbase Sues SEC and FDIC Over FOIA Non-Compliance
In an unprecedented move, Coinbase, a prominent publicly traded crypto exchange, has filed civil lawsuits against the U.S. Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC). These legal actions stem from the regulators’ failure to comply with Freedom of Information Act (FOIA) requests, which aim to uncover critical documents. The lawsuits were filed in collaboration with History Associates Incorporated, a firm specializing in historical research.
The Essence of FOIA and Its Impact on Financial Regulation
The Freedom of Information Act (FOIA) is designed to ensure transparency by obligating federal agencies to disclose previously unreleased information upon request, within a standard response period of 20 days. However, there are exemptions for details related to national security, internal personnel matters, trade secrets, and financial institution records. Despite these allowances for exemption, Coinbase’s primary argument is that the SEC and FDIC have not adequately justified their broad withholdings.
Coinbase’s Initial Requests and the Unfolding Legal Battle
In late 2022, Coinbase enlisted History Associates Incorporated to file a FOIA request. The intent was to obtain copies of “Pause Letters” allegedly sent to financial institutions, instructing them to halt all crypto-related activities indefinitely. These letters were cited in a report by the FDIC’s Office of Inspector General (OIG), which noted potential risks to the growth and innovation of financial institutions within the cryptocurrency space. Despite this, the FDIC did not release the documents in question.
SEC’s Withholding of Information and Coinbase’s Response
History Associates also filed FOIA requests with the SEC to obtain information on various investigations, notably the recently concluded “Ethereum 2.0” investigation. The SEC’s response was to withhold virtually all pertinent records, citing vague reasons that remaining information might be relevant to ongoing investigations. This generic refusal, according to History Associates, is a violation of the agency’s FOIA obligations.
Broader Context: Regulatory Transparency and Industry Discontent
The lawsuits by Coinbase and History Associates represent a broader issue within the cryptocurrency industry, where regulatory opacity is a growing concern. In a similar vein, the Blockchain Association submitted FOIA requests in March 2023 to multiple regulatory bodies including the FDIC, Federal Reserve, and Office of the Comptroller of the Currency, seeking to understand the rationale behind the de-banking of cryptocurrency firms.
Conclusion
As the legal battles unfold, Coinbase’s actions underscore a critical demand for transparency and fair regulation within the cryptocurrency industry. Chief Legal Officer Paul Grewal underscored these sentiments by calling for improved accountability and openness from financial regulators. The outcomes of these lawsuits could significantly shape the landscape of cryptocurrency regulation in the United States, promoting a more transparent and consistent regulatory environment.
