A man claiming to be a Coinbase client has filed suit against the exchange for its sale of the token XRP.
According to the complaint filed in the Northern District Court of California, Thomas C. Sandoval, the plaintiff, alleges Coinbase knowingly sold XRP as an unregistered security and gained commission on these sales.
Additionally, the suit, which seeks class action status, argues Coinbase violated California’s unfair competition laws by “[gaining] an unwarranted competitive advantage over digital asset exchange that only sold commodities.”
“Coinbase sold a token called Ripple (hereafter referred to by its trading symbol: XRP), the value of which was entirely linked to the success or failure of Ripple Labs, Inc. (Ripple Co.) the company that created the token, and the managerial efforts of Ripple Co.s executives. Investors in XRP, such as Plaintiff, reposed an expectation of profit in such managerial efforts by Ripple Co. executives and purchased the token in order to make money on their investment,” the complaint reads.
The U.S. Securities and Exchange Commission claimed last week in a lawsuit that XRP is a security, and that Ripple has been selling it without registering or seeking an exemption for seven years, raising $1.3 billion in the process. As a result of that suit, Coinbase on Monday announced it would be suspending trading in XRP.
The suit seeks unspecified compensatory damages, attorneys’ fees and any other relief the court would care to award.
Anderson Kill partner Stephen Palley told CoinDesk that he sees “a couple of issues” with the suit. To start, the suit’s allegations of fraud regarding unfair competition laws rests “on ‘information and belief,’ which is the legal equivalent of ‘I think so but am not really sure’,” Palley wrote in an email.
He added that Coinbase has “a pretty good record” of backing itself up in legal matters with the arbitration clauses in its terms of service.
In the grand scheme, he concluded, Coinbase has more than client suits to worry about with the SEC breathing down Ripple’s neck
“This is going to be hard fought in motion practice and will likely end up in private arbitration unless the court finds that a fairly narrow public policy exception applies. I’d assess the risk here to Coinbase (and other exchanges) as quite a bit less than that from continuing to list an asset that SEC has targeted and face much more dangerous enforcement action risk.”
Coinbase has not responded to CoinDesk’s request for comment.