Coinbase Challenges FDIC Over Crypto Service Restrictions
In recent developments, Coinbase has taken a strong stance against the Federal Deposit Insurance Corporation (FDIC) by contesting its attempt to dismiss a Freedom of Information Act (FOIA) lawsuit. This lawsuit is crucial as it seeks clarity on the FDIC’s alleged issuance of “pause letters” to banks, advising them to cease crypto-related services. Coinbase is now appealing to a court to mandate the FDIC to provide a detailed account of how these records were handled and to release all FOIA denial letters between 2020 and 2024.
Insights into the Controversial “Pause Letters”
Reports indicate that the FDIC initially used a broad exemption to classify these letters as “confidential bank examination records,” deliberately avoiding distinguishing between factual content and analytical material. Coinbase points out that it took multiple court orders and numerous document releases before the FDIC revealed the critical files. This prolonged process, according to the exchange, highlights the agency’s persistent resistance to transparency regarding its previous actions targeting cryptocurrency.
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Paul Grewal, Coinbase’s Chief Legal Officer, expressed on X that the FDIC’s reluctance to cooperate is evident, stating that their obstructive behavior is unacceptable and will be contested. He emphasized the need for the FDIC to provide testimony through a 30(b)(6) deposition and to produce all relevant FOIA correspondence.
FDIC’s Internal Protocols Under Scrutiny
Recent reports have unveiled that the FDIC’s internal guidelines instruct examiners to completely withhold documents related to Exemption 8, disregarding the need to separate factual data from analytical or deliberative content. During a January hearing, regulators conceded that they lacked a formal litigation-hold process for FOIA requests, which initially resulted in a focus only on documents shared with the Office of Inspector General. Consequently, key emails and memos directly referencing “pause letters” were initially overlooked.
Currently, the total cryptocurrency market capitalization stands at $3.7 trillion, according to TradingView.
Crypto Banking Access Faces Challenges
A survey conducted by the Alternative Investment Management Association (AIMA) revealed that 75% of crypto funds encounter difficulties in securing fundamental banking services. This banking partner reluctance has complicated transaction and settlement processes for companies like Coinbase. Banks are increasingly cautious of potential regulatory risks, and if the court mandates additional sworn testimonies, it could clarify who authorized the “pause letters” and the reasons behind the excessive secrecy.
In its quest for further discovery, Coinbase is also requesting every FOIA denial letter the FDIC issued over the specified four-year period. The exchange seeks sworn declarations from FDIC representatives about the criteria used to classify records as confidential.
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