Coinbase sued for allowing the sale of XRP

Coinbase sued for allowing the sale of XRP - CoinbaseIn an interesting aftermath of Ripple Labs' battle with the U.S. Securities and Exchange Commission (SEC), a Missouri man who claims to be a Coinbase customer is suing the cryptocurrency exchange for selling the XRP token.

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In a complaint filed with the Northern California District Court, Thomas C. Sandoval, a citizen of St. Louis County, claims that Coinbase knowingly sold XRP as an unregistered stock and received a commission on these sales.

The lawsuit, which aims at class action status, claims that Coinbase violated California's unfair competition laws "by gaining an unwarranted competitive advantage over digital asset exchanges that only sold commodities."

"Coinbase sold a token called Ripple (hereafter referred to by its trade 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 commitment of the executives of Ripple Co.

Investors in XRP, such as the plaintiff, have placed a profit expectation in such management efforts by the executives of Ripple Co. and bought the token to earn with their investment, ”the complaint read.

The risk of law enforcement is raised for exchanges that continue to trade XRP

The SEC filed a lawsuit against Ripple Labs last week, claiming that the cryptocurrency XRP (here the quotation in real time) is actually a stock that the company put up for sale without requiring registration, amassing $ 1,3 billion from the sale.

Following the SEC's action against Ripple, Coinbase said on December 28 that it will suspend trading of XRP starting January 19. The lawsuit against Coinbase calls for unspecified compensatory damages, legal fees and more. Anderson Kill's partner Stephen Palley said he sees "a couple of problems" with this lawsuit.

He said the fraud allegations regarding unfair competition laws are based on "information and belief" which is the legal equivalent of "I think so, but I'm not really sure," Palley said.

He also added that Coinbase has "a pretty good track record" in coming out unscathed from legal issues involving customers thanks to an arbitration clause in its terms of service.

In the grand scheme of things, he concluded, Coinbase will have more customer lawsuits to worry about, with the SEC cornering Ripple. "The lawsuit will be hard fought during the trial and will likely end up in private arbitration unless the court finds a rather narrow public policy exception applies," Palley said of the Coinbase lawsuit.

"I would rate the risk here for Coinbase (and other exchanges) as a little lower than that of continuing to list an asset the SEC has targeted and facing a much more dangerous law enforcement risk," he added.