Ripple Counsel Reacts To Potential SEC Lawsuit Against Coinbase, As Coinbase becomes the SEC’s latest target.
Ripple Chief Legal Officer Stuart Alderoty has reacted to Coinbase’s receipt of a Wells Notice from the United States Securities and Exchange Commission (SEC).
For context, a Wells notice is a letter from the SEC that expresses the agency’s belief that a company or individual has violated securities laws. Notably, it allows the recipient to respond to these claims to convince the market regulator otherwise, with the SEC having six months to decide whether or not to go forward with an enforcement action.
Yesterday, Coinbase confirmed the receipt of this letter from the SEC. However, per the blog post authored by the crypto exchange’s Chief Legal Officer Paul Grewal, the notice offered little information for Coinbase to respond to.
The letter taps an unspecified portion of tradable assets on the exchange, Coinbase’s staking service, Coinbase Prime, and its self-custody wallet as violating investor protection laws, per the disclosure. It follows an investigation into the crypto exchange last year. In addition, the regulator also claimed that nine of the assets listed on the exchange were unregistered security in a lawsuit against former Coinbase employee Ishan Wahi for insider trading charges.
Notably, Coinbase to date maintains confidence in its asset listing process. “Coinbase does not list securities,” Grewal wrote in the blog yesterday. In addition, the crypto exchange has also maintained and frequently argued in recent weeks that its staking program does not represent an unregistered security offering. Recall that Coinbase competitor Kraken in February agreed to permanently stop its staking program for U.S. customers and pay a $30 million fine to settle charges from the SEC.
Coinbase highlights that the threat of enforcement action comes even though the SEC, based on these same disclosures, approved its business and allowed it to become a publicly traded company in April 2021, days before SEC Chair Gary Gensler assumed office. In addition, the firm noted that it had met with SEC officials 30 times in the past nine months in an attempt to register a portion of its business and resolve investigations. However, the SEC which initially suggested this approach, ended the process in January after Coinbase claimed to have spent millions in legal fees to suggest suitable registration models, as none exists for crypto under the status quo.
“The SEC will not let crypto companies ‘come in and register’ – we tried,” Grewal surmised, alluding to Gensler’s frequent speeches calling on crypto companies to register with the regulator.
As highlighted in recent reports, the crypto exchange appears to have been preparing itself for a fight with the regulator in recent months. As recently reported, the crypto exchange changed its risk disclosure to indicate that it may decide not to remove a listed crypto asset even if the SEC declares it a security save a court ruling in the regulator’s favor.
“While we understand that this is all part of the journey to reforming our financial system, we are right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court,” Coinbase Chief Executive Officer Brian Armstrong wrote in a Twitter thread yesterday.
Would Ripple Support Coinbase?
In a tweet today, Alderoty appears to throw his weight behind the leading crypto exchange quoting the ancient proverb, “The enemy of my enemy is my friend.” The Ripple CLO retweeted Grewal’s response to the SEC’s Wells notice moments later.
The enemy of my enemy is my friend.
— Stuart Alderoty (@s_alderoty) March 23, 2023
Ripple remains tied in an ongoing lawsuit with the market regulator over whether XRP is an unregistered security offering. In the fight that the blockchain payments company touted as an attack against the entire nascent market, it received support from Coinbase in the form of an amicus brief.
As highlighted by ConsenSys lawyer Bill Hughes, we are likely also to see a flurry of amicus briefs in support of Coinbase should the SEC decide to proceed with an enforcement action. Judging from Alderoty’s reactions, and past antecedents, it would be unsurprising to see Ripple amongst Coinbase supporters. Meanwhile, Hughes expressed the belief that the potential legal battle would go on for years if the SEC proceeds with enforcement, enduring beyond Gensler’s reign. According to the attorney, this will likely result from disputes over facts, tapping it get to appeal.
This #Coinbase lawsuit will take FOREVER. Especially if there are facts to fight over, and oh boy believe me CB will find some.
90% chance it goes up on appeal, however it plays out at the trial court level.
Gary is gone in 2 years max. He doesn't care.
The lawsuit IS the goal.
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) March 22, 2023
CryptoLaw founder Attorney John E. Deaton, who predicted this outcome in July reacting to the development, slammed the SEC as a “compete [complete] and utter disgrace.” The attorney asserted that he is “angered and saddened” by the regulator’s conduct.
When you read this coupled with the conduct of the @SECGov in the @Ripple case, must come to the conclusion that the SEC, as an institution, is a compete and utter disgrace.
I’m not surprised, considering 9 months ago I said the SEC would do this, but I am angered and saddened. https://t.co/hZOMew2I22
— John E Deaton (@JohnEDeaton1) March 22, 2023
In a follow-up tweet, the attorney asserted that believers in a free market system would be “disgusted” by the SEC’s conduct.
Even if dislike Coinbase as a business or you think Coinbase turned its back on #XRPHolders, if you believe in a fair free market and believe the @SECGov should protect investors, you have to be disgusted by the SEC conduct here. https://t.co/qA9HIny2Ws
— John E Deaton (@JohnEDeaton1) March 22, 2023
The future of the nascent market in the U.S. remains shrouded in uncertainty. In the wake of the Terra and FTX collapse, regulators, particularly the SEC, appear to have launched an industry-wide crackdown. Conversely, market participants continue to call for clear market guidance.
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