Coinbase Has Obtained Internal Documents from the SEC Concerning Its Ethereum 2.0 Investigation

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Coinbase (NASDAQ:COIN) has secured internal U.S. Securities and Exchange Commission (SEC) documents related to the agency's probe into Ethereum 2.0, following a Freedom of Information Act lawsuit.

What Happened: Paul Grewal, Coinbase’s (NASDAQ:COIN) Chief Legal Officer, disclosed on X, formerly Twitter, that the SEC has listed the documents it’s withholding.

Among the disclosed documents is an internal analysis of ETH 2.0 under the Howey test, conducted in May 2022. Another document is a February 2023 email discussing the classification of Ethereum (CRYPTO: ETH) as a security.

Also included is an April 2023 memorandum prepared for commissioners before authorizing the ETH 2.0 investigation, and the case closing narrative for the investigation.

The SEC had initially denied Coinbase’s FOIA requests, citing Exemption 7(A), which pertains to pending or ongoing enforcement proceedings.

After the closure of the Ethereum 2.0 investigation without any charges and noting that the exemption “may” no longer apply, the SEC proposed a three-year timeline to review over 132,000 documents for other potential exemptions.

"It’s telling that in the time it took the SEC to close out its (unopened) case, they’ve seen fit to add a 3YR time period to review 132K documents for other potential exemptions," Grewal stated.

Why It's Important: Grewal further expressed skepticism over the SEC’s actions.

"Coinbase asked simple questions about the internal criteria the SEC uses to decide which crypto assets to pursue. We still don’t have answers, but we’re not surprised. Maybe they’re trade secrets?" Grewal added.

He highlighted that Coinbase is suing the SEC to release an internal memo on the agency’s thinking regarding crypto. Grewal noted that the SEC’s own administrative law judge ruled that the agency had no valid basis to withhold the memo.

"The SEC’s treatment of crypto assets has been wildly inconsistent. E.g., today we learned that in 2022, the SEC conducted an 'ecosystem' test—and apparently, ETH passed but other assets did not."

Pointing out the absurdity of the timeframes involved, Grewal stated that the SEC completed its analysis of ETH 2.0 in May 2022, yet they’re proposing an astronomical three-year period to examine 132,000 documents.

"We need more transparency, not less. Only then will we learn from our regulatory missteps and avoid them in the future," he concluded.

Coinbase and SEC Lawsuit: The cryptocurrency exchange is engaged in a broader legal battle with the SEC. Earlier this year, Coinbase instituted a lawsuit against the agency to obtain records pertinent to prior investigations and actions related to cryptocurrency.

The exchange is also seeking to compel the Federal Deposit Insurance Corporation to respond to a FOIA request concerning the agency’s internal guidance to banks on providing services to digital asset firms.