Cryptocurrency exchange Coinbase is seeking permission to file an amicus brief supporting Ripple Labs in its legal battle with a top federal regulator.
The company argues that the Securities and Exchange Commission’s (SEC) lawsuit against Ripple is unprincipled, and violates due process.
Coinbase’s Defense for Ripple
Per the amicus brief dated Monday, Coinbase claims the SEC did not provide fair notice that Ripple’s conduct was illegal, prior to suing the firm. An amicus curiae is a third party that isn’t part of a legal case but is permitted to assist the court with additional information.
The lawsuit, filed by the SEC in 2020, concerns Ripple’s $1.3 billion XRP sale in 2013. The commission alleged that the sale constituted an unregistered securities offering, depriving investors of rightful consumer protections.
However, the topic of which cryptocurrencies constitute securities is still hotly debated in Washington. CFTC chief Rostin Benham said last week that he views Ether as a commodity. Meanwhile, SEC chairman Gary Gensler’s opinion on this remains ambiguous.
According to Coinbase, the SEC had implicitly signaled for years that long-standing crypto assets were not securities. For example, the SEC’s former Director of Corporation Finance, William Hinman, said in a 2018 speech that he personally viewed Ether as a non-security. Coinbase said that it decided to list XRP at its exchange following this understanding.
As such, when the commission filed its lawsuit in 2020, it inflicted vast pain on XRP investors and other market participants.
“The SEC’s allegation led multiple U.S. platforms to delist and halt trading in XRP shortly after this lawsuit was filed, resulting in a $15 billion decline in XRP’s market value and significant losses to Coinbase’s customers,” the exchange elaborated.
Coinbase’s Gripes With the SEC
Coinbase went on to blast the SEC’s ‘regulation-by-enforcement’ approach to the crypto industry. The approach, it explained, only drives industry participants oversea due to fear of litigation.
“The fair notice defense invoked by Ripple provides a constitutionally required check against such overreach of government enforcement power,” concluded Coinbase.
Earlier this month, Coinbase also filed a brief backing Grayscale’s offensive lawsuit against the commission. It said that the SEC has failed to apply consistent treatment between Bitcoin spot ETF and futures ETF products.
Coinbase itself has been a victim of SEC investigation, including for allegedly listing multiple unregistered securities on its platform.