SEC requests 28-day extension to respond to Coinbase's appeal following formation of 'crypto task force'

The Securities and Exchange Commission asked for a 28-day extension in response to Coinbase's appeal, a part of a long legal battle between the agency and crypto exchange centered on how to classify digital assets. 

The SEC asked to extend the deadline to March. 14 from Feb. 14, which had been the agency's original deadline to respond. The legal feud between Coinbase and the SEC centers on whether digital assets should be classified as securities or if they represent a new type of financial instrument.

In its latest court filing, the SEC stated the formation of its new crypto task force — organized by President Trump's Acting Chair for the SEC, Mark Uyeda, and led by Commissioner Hester Peirce — impacts its response as well as the underlying classification issue at hand. 

Under the previous administration, Chair Gary Gensler took the hardline that most cryptocurrencies resembled securities and fell under the agency's remit. However, regulatory headwinds have shifted as President Trump has sought to establish pro-crypto officials in key positions. 

"The crypto task force’s work may affect and could facilitate the potential resolution of both the underlying district court proceeding and potential appellate review, conserving judicial resources," the commission wrote in the Feb. 14 document. "Because the Commission’s review of crypto-related issues is ongoing, the Commission requests this additional time to prepare its answer to Coinbase’s petition and for appropriate review."

"No party will be prejudiced by the grant of the requested extension," the SEC's document continued. "This is not an expedited appeal, and Coinbase consents to this motion."

Since Gensler stepped down in January, Republican Commissioner Mark Uyeda has become acting chair and picked fellow Republican Commissioner Hester Peirce to lead an SEC crypto task force. Peirce released a set of priorities for her task force, including classifying some tokens as "non-securities" and overall messaging to clarify how federal securities laws apply to crypto. 

Earlier this week, Binance and the SEC jointly asked the court to pause their legal case for 60 days, in part due to consideration of the agency's new task force. The SEC sued Binance in 2023 over being unregistered and misrepresenting trading controls. 

Ongoing case

The SEC sued Coinbase in 2023 for allegedly operating as an unregistered exchange, broker and clearing agency. The regulator also took issue with Coinbase's staking and wallet services. U.S. District Judge for the Southern District of New York, Katherine Polk Failla, sided with Coinbase on the wallet part and dismissed the SEC's claim. 

Coinbase filed its appeal in April, claiming substantial grounds for differences of opinion. SEC commissioners, lawmakers and courts themselves have been at odds with how the Howey Test applies to crypto transactions, Coinbase's lawyers said in that 27-page appeal. The Howey Test is based on a 1946 U.S. Supreme Court case frequently cited by the SEC to determine if an asset qualifies as an investment contract and, therefore, a security.

Last month, Judge Failla granted Coinbase's appeal, a rare move given that interlocutory appeals, or appeals made before a judge makes a final decision, are rarely granted. 

In her opinion in January, Judge Failla said that there is "substantial ground for difference of opinion" because of "conflicting authority" on how Howey applies to crypto and said that "the application of Howey to crypto-assets raises a difficult issue of first impression for the Second Circuit."

That same month, Judge Stephanos Bibas of the U.S. Court of Appeals for the Third Circuit wrote an opinion stating the SEC's decision to ignore Coinbase's petition regarding crypto-specific rules was "arbitrary and capricious." However, he did not go as far as requiring the agency to engage in rulemaking. 

In a separate case filed in the District of Washington, Coinbase sued both the SEC and Federal Deposit Insurance Corporation for inadequately responding to a FOIA request seeking information related to "debanking" procedures in the U.S. after the collapse of FTX. Last week, District Judge Ana C. Reyes excoriated the FDIC for its behavior in the case and apparent attempts to shield information.