Coinbase join support to Ripple against SEC lawsuit. Can Ripple win?

United States- based cryptocurrency exchange Coinbase has come out in support of Ripple Labs in its legal battle against the Securities and Exchange Commission (SEC). The court case between Ripple Labs and US SEC is continued since 2020 and is expected to come to a conclusion by the first half of 2023.

Paul Grewal, Chief Legal Officer at Coinbase has asked the Judge for permission to file an amicus brief in the SEC case. The crypto exchange has filed a request in the court in support of Ripple’s Fair Notice Defense

In a series of tweets, Grewal commented on the SEC saying that by suing sellers of XRP tokens after making public statements signaling that those transactions were lawful, the SEC has lost sight of this bedrock principle.

What is the case?

Ripple is a currency exchange and remittance network created by a US-based technology company Ripple Labs Inc. It aims to bring fast and low-cost payments to financial institutions. XRP is its native cryptocurrency which came to market in 2013 initially to raise funds for the company.

In December 2020, the SEC filed a lawsuit against Ripple Labs and its executives for allegedly raising $1.3 billion by selling XRP through unregistered security transactions. The enforcement agency also claimed that Ripple Lab’s CEO Brad Garlinghouse and co-founder Chris Larsen fooled its customers by offering XRP holdings for hundred of millions of dollars. This has eventually led to a $15 billion decline in the XRP’s market capitalization. The company Ripple Labs also lost many of its customers.

In a reply, Chris Larsen refused the claims and said that the SEC complaint is based on the Howey Test which determines whether an asset is a security. The Howey Test is used to determine whether an investment contract exists. It is important to note here that the filing mentions that by suing sellers of XRP tokens after making public statements signalling that those transactions were lawful.

The case has once again ignited a long-standing debate on whether cryptocurrencies should be considered as securities or not. A side of it argues that money is invested as cryptocurrency and needs to be purchased with fiat currency. Crypto projects like XRP are governed by a centralised common enterprise should be sold through centralised exchanges. While SEC claims that Ripple does not meet the criteria of the Howey Test, Ripple retaliates that all the sales are legal and that it just does not meet the first rule of the test which required an investment contract.

Last month in October, Investor Choice Advocates Network and SpendTheBits filed an amicus brief in the court. Following the days after, On october 28 crypto advocacy group the Blockchain Association also announced to support Ripple by filing its own amicus brief. It said that SEC chairman Gary Gensler’s views on securities laws could have “devastating effects” on the space.

If approved, Coinbase will join the many other institutions which were granted permission to file amicus briefs in the court. Amicus Briefs are basically submitted by an individual or organisation that is not a party to a case but can try to influence the court’s decision.