Coinbase Exposes SEC XRP Talks and NY Pressure to Label ETH a Security

• Coinbase has released about 10,000 documents, hinting that the US Securities and Exchange Commission (SEC) internally discussed the security status of XRP. 
• The documents also disclose that the New York State Office of the Attorney General’s Investor Protection Bureau Chief asked the SEC to file a brief on its argument related to ETH’s security status.

In a recent update, CNF disclosed that Coinbase has been sued by the State of Oregon’s attorney general, Dan Rayfield, for facilitating the sales of unregistered securities. In that lawsuit, 31 tokens were listed as securities, including XRP and ETH. Meanwhile, its recent litigation with the US Securities and Exchange Commission (SEC) has come to an end after a joint stipulation was filed to dismiss the enforcement actions against Coinbase Inc. and Coinbase Global Inc.

Months after this development, Coinbase has released 10,000 documents from the Freedom of Information Act request to several agencies, with some disclosing an internal discussion on the security status of XRP.

According to the documents, a 2023 email discloses that the New York State Office of the Attorney General Investor Protection Bureau Chief Shamiso Maswoswe asked the Commission to file an amicus brief to support its argument that ETH is also a security.

We would like to request that the SEC file an amicus in support of the argument that Ether is a security. Whether it is or not will not be dispositive in our case (we have authority over both securities and commodities) – but I think it would be beneficial to investor protection to get a court to hold that Ether is a security. Conversely, it wouldn’t be great (though again not dispositive) for the court to decline to find it’s a security.

Argument on the ETH and XRP Security Status

The argument on the security status of ETH intensified after the SEC, under the leadership of Gary Gensler, was sued by Consensys over its approach to regulating ETH. In their argument, Consensys pointed out that a former SEC Director of the Division of Corporation Finance, William Hinman, had already cleared that Ethereum is not a security.

Meanwhile, the SEC had also referred to XRP as a security in a separate letter issued on December 9, 2021. As reviewed by CNF, the SEC expressed dissatisfaction with Ripple’s launch of Liquidity Hub without federal approval. Responding to this, Ripple highlighted that the SEC is not a prudential regulator. Prior to that, the Commission had indicated in a December 2020 lawsuit that Ripple raised $1.3 billion from the sales of XRP.

In June 2023, Judge Analisa Torres ruled that the sale of XRP to retail investors did not violate federal securities laws. As detailed in our previous post, its sale to institutional clients was rather flagged as a violation of securities laws.

Months ago, Coinbase filed a Freedom of Information Act (FOIA) request to uncover the financial implications of the SEC’s enforcement actions against crypto firms. As discussed earlier, the exchange’s Chief Legal Officer, Paul Grewal, highlighted that Coinbase was seeking details on the number of investigations, the total cost incurred, as well as the personnel and third-party contractors involved.