When the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple over the alleged unregistered sale of XRP tokens, it was clear that this was going to be a landmark case for the industry. The case has taken a new twist as a Missouri man, claiming to be a client of San-Francisco-based cryptocurrency exchange Coinbase, is suing the trading platform for allowing the sale of XRP tokens.
Thomas Sandoval filed a complaint in a California Court against Coinbase for knowingly facilitating the sale of XRP tokens and collecting commission.
“Despite its knowledge that XRP was a security, Coinbase continued offering XRP to the public and charged commission for the sales,” reads an excerpt of the complaint.
The majority of exchanges generate revenue from the trading fees they charge. Coinbase, which has several products, has numerous revenue streams such as its institutional custodial services.
The complaint, which could later become a class-action lawsuit, goes on to say that Coinbase gained an unfair advantage over its competitors that focus on selling commodities.
“Coinbase holds itself out as a digital asset exchange, essentially a commodities broker for cryptocurrency tokens such as Bitcoin. Coinbase is not licensed to sell securities,” reads the complaint.
Coinbase and Ripple
The SEC filed an enforcement action against Ripple on Dec. 22, alleging that the payments firm and its two key executives had raised more than $1.3 billion in an ongoing and unregistered securities sale of the XRP token.
Ripple denies any wrongdoing and claims that XRP, its affiliated token, is a currency. However, the plaintiff argues that XRP is a security because Ripple controls the token.
“XRP is a security and not a commodity because Ripple Co. has sole control over the purported cryptocurrency’s nodes, and is therefore a common enterprise for purpose of the federal securities laws. Investors such as Plaintiff invested capital in XRP with the expectation of profit from Ripple Co.’s soles efforts.”
Following the enforcement action by the SEC, a number of exchanges are weighing their options on whether to suspend XRP or not.
Coinbase recently announced plans to suspend XRP markets on January 19 due to Ripple’s landmark case against the SEC.
A number of exchanges have taken similar action against XRP, which due to the trading suspensions, is plummeting.
The complaint did not specify the compensatory damages the plaintiff is seeking.
Depending on the outcome, this lawsuit might open a can of worms that may potentially land other exchanges in legal woes.