A Coinbase customer has filed a class-action lawsuit alleging that Coinbase should have known that XRP was a security. What do they hope to gain for themselves and all Coinbase customers?
Coinbase: A New XRP Lawsuit
Customer Thomas Sandoval is hoping to recoup some of his XRP losses by suing Coinbase. Since Ripple Labs announced it was facing a lawsuit by the US government, the token price has plummeted.
Meanwhile, major exchanges, including Bittrex, said they would delist XRP soon thereafter. Coinbase announced it would halt XRP trading on Jan 19, 2021. Presumably, it feared backlash should the lawsuit rule against Ripple.
The original lawsuit alleges that XRP is a security under US law. This would mean that the Securities and Exchange Commission (SEC) has not legally approved the sale and trading of the token.
The lawsuit implicates two Ripple company executives and alleges that they knowingly sold more than $1.3 billion worth of securities illegally. The SEC said:
“Ripple engaged in this illegal securities offering from 2013 to the present, even though Ripple received legal advice as early as 2012 that under certain circumstances XRP could be considered a … security under the federal securities laws.”
But Mr. Sandoval takes that idea a bit further. His complaint, filed in federal court, alleges that Coinbase’s negligence should result in a return of his trading fees.
The logic goes that Coinbase was negligent in selling XRP, an unlicensed security in this scenario. Therefore, the commissions Coinbase charged for the illegal sale should be returned to the customer.
Returns of Fees for All?
In Sandoval’s suit, the case against Coinbase is built on a technicality. The crypto asset was a security, and Coinbase should have known because it understood that XRP’s nodes were under Ripple’s control.
Since the company owned the nodes, they were a part of the company and, therefore, not a commodity, the suit argues.
This is a particularly interesting argument given XRP’s reputation of being centralized and “for the banks.” XRP is meant to be a vehicle for funds transfers (which, by definition, likely makes it a currency).
Crypto-enthusiasts have nevertheless chided it for being centralized, unlike Bitcoin (though most BTC mining is in China) or Ethereum.
If this centralization becomes the crux of XRP’s possible demise, it could be a boon for other crypto assets. The theoretical and perhaps legal classification of democratic, decentralized ledgers has been a narrative most crypto lovers have been telling for years.
Should Sandoval win the suit, there could be major implications. Besides court rulings supporting the idea that any “centralized” ledger, even if distributed, is a security, there are also all the other 35 million Coinbase users.
Could they also be entitled their fees back? Or perhaps at least a share of the settlement? For now, XRP is hanging on, having found some support. It’s still the #4 cryptocurrency, and there’s not much trouble outside of the US.
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