The leading U.S. cryptocurrency exchange Coinbase was sued for $10 million on Dec. 30 for selling XRP, which the plaintiff calls a security the firm was not licensed to sell.
The lawsuit, filed in the U.S. District Court for the Northern District of California, is seeking class action status.
It has not been a good day for Coinbase CEO Brian Armstrong. Earlier today, the New York Times published a story accusing the firm of underpaying female and black employees.
The litigation comes after the U.S. Securities and Exchange Commission sued Ripple and its two top executives for selling XRP, which the agency called an unregistered security.
Ripple, CEO Brad Garlinghouse, and Executive Chairman Chris Larsen have vigorously denied the charges and deny that XRP is a security. They have promised to fight the SEC enforcement lawsuit, calling it an “attack” on the entire cryptocurrency industry.
On Dec. 28, Coinbase announced it will delist XRP in January, citing the SEC enforcement action.
The suit against Coinbase was filed by attorney Benjamin Gubernick on behalf of plaintiff Thomas Sandoval, who it said bought XRP on the exchange.
Noting that Coinbase is not licensed to sell securities, the suit called Coinbase’s sale of XRP “unlawful” and “fraudulent,” claiming that “Coinbase falsely represented that XRP was a commodity when… Defendant knew it was a security.”
It also said that selling XRP was “unfair” as it gave Coinbase “an unwarranted competitive advantage over digital asset exchanges that only sold commodities.”
As a result of these actions, the lawsuit alleges, Coinbase collected commissions from Sandoval and other traders.
Several more major cryptocurrency exchanges announced plans to delist XRP on Dec. 30, including Bittrex, as of Jan. 15, and Binance.US, beginning on Jan. 13. The main Binance exchange, which does not serve U.S. clients, has not announced plans to delist XRP.
Crypto news source CoinDesk announced that digital currency prime broker Genesis will suspend trading on Jan. 15. Both are owned by Digital Currency Group.
SEC v. Ripple moves forward
Meanwhile, Federal District Judge Annalisa Torres, who is hearing the SEC’s case in the Southern District of New York, set the first pretrial conference for Feb. 22. The hearing will take place by phone.
It orders both parties to submit a joint document stating their version of the facts and legal bases for their positions, as well as any motions they foresee filing, and what the prospects of a settlement are.
The latter is unlikely, as the SEC has been working on the case for years, and Ripple, Garlinghouse, and Larsen have been very clear that they do not intend to settle.
In a Dec. 22 letter to employees, Garlinghouse claimed that he and Larsen had turned down offers to settle separately, but had no intention of doing so. He said:
“We will aggressively fight—and prove our case—through this case we will get clear rules of the road for the industry here in the U.S. We are not only on the right side of the law, but we will be on the right side of history.”