Thomas C. Sandoval, the St. Louis County plaintiff, filed in the Northern District Court of California a complaint claiming Coinbase, a popular crypto exchange in the US, deliberately sold XRP (+3.2%) as unregistered security and got commissions on these sales. Sandoval further claims that Coinbase Inc was aware XPR was security rather than a commodity but still sold the Ripple Lab’s tokens.
According to the complaint, Coinbase sold a token called Ripple, the value of which was wholly connected to the success or failure of Ripple Labs, Inc. and the organizational efforts of Ripple Co. executives. XPR Investors, such as Plaintiff, reposed an expectation of profit in Ripple Co. directors’ executive actions and bought the token to gain on their investment.
The Lawsuit Against Coinbase
The lawsuit, which seeks class-action status, argues Coinbase breached California’s unfair competition laws by acquiring an unjustified advantage over digital asset exchanges that only sold commodities. Thomas Sandoval is seeking unspecified damages for the commissions he and other consumers paid to Coinbase for XRP tokens, attorneys’ fees, and other relief.
The lawsuit comes a few weeks after Coinbase filed to go public. It’s expected to be the US’s first crypto-related initial public offering, An opportunity for the industry to gain mainstream recognition.
Recently The SEC filed suit against Ripple Labs, claiming XRP is a security Ripple that has been selling for a couple of years without registering it or seeking an exemption, raising $1.3 billion illegally. Since SEC’s action against Ripple, Coinbase decided to suspend trading in XRP as of Jan. 19. The blockchain company owns almost half of the token’s total supply.
Tough Fight
Anderson Kill partner Stephen Palley had noted some issues with this lawsuit. He said its allegations of fraud regarding unfair competition laws rests “on information and belief,” which legally means ‘I think so but am not sure.’
Palley further said that Coinbase has “a pretty good record” of backing itself up in legal matters involving clients through the arbitration clause in its terms of service.Stephen Palley said the Coinbase lawsuit would be a tight fight in motion practice and would likely end up in private arbitration unless the court finds that a relatively narrow public policy exception applies. He added that the risk here to Coinbase (including other exchanges) is quite a bit less than that from continuing to list an asset the SEC has targeted and faced much more dangerous enforcement action risk. Coinbase is yet to comment on the complaint.
