Why Alabama’s Securities Commissioner Dropped Its Case Against Coinbase

Alabama’s Securities Commission this week dropped its enforcement action against crypto exchange Coinbase for its staking program—an apparent sign that regulators are letting up on digital assets companies as the federal government continues its pro-crypto pivot under President Trump. 

But Commissioner Amanda Senn told Decrypt the regulator is still as committed as ever to promoting “market stability and integrity”—and it won’t hesitate to bring enforcement actions against Coinbase or any other firm, if necessary.

“We merely recognized that we may be able to accomplish what we want without the time and expense of litigation,” Senn said. “Had we been further down the road [in our action against Coinbase], we may have proceeded.”

Crypto out of the crosshairs?

Alabama is one of 10 states that banded together in June 2023 to bring a spate of enforcement actions against Coinbase, alleging the crypto exchange had violated securities laws by failing to properly register its staking services. 

But now, as policymakers and federal regulators ratchet back their oversight of the digital asset industry under pro-crypto President Donald Trump, that unity has largely crumbled. 

Five of the states—Illinois, Kentucky, South Carolina, Vermont, and Alabama—have dropped their enforcement actions against Coinbase over the past few weeks, while regulators in five other states are resisting pressure from Coinbase to do the same, according to a report from political news outlet Punchbowl. 

“We’re halfway there: Alabama just dropped its enforcement action against Coinbase,” the firm’s lead legal counsel Paul Grewal said Wednesday in a social media post, adding that the states’ actions were “misguided” and claiming that the “holdouts are still electing to waste taxpayer resources.”

However, Senn told Decrypt that she and her colleagues “don’t believe litigation is a waste of time”—and their call to drop an enforcement action against the firm “should not be taken by anyone that we will not litigate if an appropriate regulatory scheme [for the cryptocurrency industry] is not adopted” in the U.S.

Alabama rescinded its enforcement action against Coinbase to “allow time” for policymakers to create a legislative framework for the cryptocurrency industry—a move that could save investor shareholder and taxpayer dollars, Senn explained.

“By all accounts, a regulatory framework appears imminent, so it made sense for us to table our litigation posture and allow time for our policymakers to continue their good work,” Senn said.

Experts expect a market structure bill to pass in the latter half of this year, despite recent rumblings of disagreements between crypto-industry power players over what that legislation should entail.

Senn noted that lawmakers and federal regulators are holding multiple hearings and bimonthly roundtable discussions on crypto-focused legislative efforts and regulations.

“They’re pretty aggressive in their agenda,” she said, speaking of the pace at which lawmakers have moved to advance crypto-focused policy efforts.

Rethinking enforcement

However, mounting momentum for legislative reform on Capitol Hill is just one reason for which the Alabama Securities Commission dropped its action against Coinbase.

When the Commission decided to drop its enforcement action, it was still in the early stages of that process and was engaging in talks with Coinbase’s team, according to Senn. 

“There were examinations of procedures but we were not in active discovery,” she explained.

That’s because—unlike some states that issued cease and desist orders to Coinbase—Alabama issued a show-cause order, a kind of enforcement action that acts more as a “vehicle for discussions” than a directive for a firm to completely halt its operations in a particular jurisdiction.

“Some states have already expended significant resources toward litigation and were much further down the road,” Senn explained. “Each jurisdiction should make its own decision about how it should proceed.”

Asked why Alabama opted to issue a show-cause instead of immediately ordering Coinbase to stop its activities in its jurisdiction, Senn said: “I consider [Coinbase] part of the financial sector—it’s a dollar in, a dollar out… but I appreciate that this is new technology, and a different transmission process and rather unique business model.”

“Now if we had issued a cease and desist, then the conversation would have been entirely different,” she added.

Senn stressed that Alabama’s choice to withdraw its enforcement action against Coinbase doesn’t mean the agency will hesitate to go after firms that break the rules or threaten to harm consumers. 

Regulators in the Yellowhammer State are “still combating fraud” and protecting consumers, according to Senn, who referenced the infamous Mt. Gox Bitcoin exchange that faced hacks and shut down in 2014, leaving users with massive losses.

“Mt. Gox is still very much on our minds,” she said.

Edited by Andrew Hayward

Editor’s note: This story was updated to clarify one of Commissioner Senn’s comments.