• In a lawsuit filed in a California federal court, Coinbase is accused of unfair competition with respect to the sale of XRP.
• According to the indictment, Coinbase allegedly knowingly sold XRP as an unregistered security and received commissions for these sales.

The SEC lawsuit against Ripple Labs continues to cause a stir in the crypto space. Not only for Ripple itself, but also for all exchanges that offer the XRP token for trading, the unresolved securities issue results in a precarious situation. As a civil lawsuit filed yesterday in the Northern District Court of California shows, the first plaintiff now apparently wants to profit from this situation.

The suit, filed by Thomas C. Sandoval, accuses Coinbase of unfair competition by knowingly selling XRP as an unregistered security and receiving commissions on those sales. This competitive advantage, according to the lawsuit, allegedly existed “over digital asset exchanges” that “sold only commodities.”

Similar to class action lawsuits against Ripple that have been pending for several years, Sandoval argues that the success of the XRP token is dependent on Ripple’s management efforts:

Coinbase sold a token called Ripple (hereafter referred to by its trading symbol: XRP), the value of which was entirely linked to the success or failure of Ripple Labs, Inc. (Ripple Co.) the company that created the token, and the managerial efforts of Ripple Co. executives. Investors in XRP, such as Plaintiff, reposed an expectation of profit in such managerial efforts by Ripple Co. executives and purchased the token in order to make money on their investment.

According to the indictment, which seeks class action status, Coinbase also should have known that XRP was a security for two reasons.

On information and belief, Coinbase, because of its technological integration into XRP nodes and statements made by Ripple Co.’s executives, Coinbase knew that XRP was not a commodity, but rather a security under federal securities laws.

In the wake of the SEC’s action against Ripple: a rather feeble effort?

As Stephen Palley, partner at Anderson Kill, explained, it was predictable that “we’ll see litigation like this in the coming weeks.” However, the lawyer rates the threat to Coinbase from this lawsuit as rather low. “Presumably CB will respond by moving to compel arbitration — the TOS arb clause has been upheld recently — and citing class waiver as well,” Palley stated.

Moreover, compared to SEC enforcement, the risk is rather low from a “time, quantum, and cost standpoint.” Last but not least, Palley classifies the charges as a “pretty weak” effort, since Sandoval is merely relying on conjecture:

Pleading fraud on information and belief, meh. Color me unimpressed by this attempt. Someone else will come along and take a better shot, though I am just a simple country chicken, so what do I know.

As CNF reported, Coinbase is among a number of exchanges that suspended trading XRP in the wake of the SEC’s lawsuit against Ripple. The largest U.S. exchange switched XRP trading to “limit only” back on Dec. 28. Trading will be fully suspended on Tuesday, January 19, 2021, at 10 a.m. PST.

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