Attorney John E. Deaton, the founder of CryptoLaw, has recently stated that Coinbase, a cryptocurrency exchange platform, may have a stronger “fair notice defense” than Ripple in the face of potential enforcement action from the United States Securities and Exchange Commission (SEC).
A “fair notice defense” refers to the argument that the SEC did not provide clear enough guidance to the company on whether a particular activity or investment constituted a security. Therefore the company could not have reasonably known it was violating securities laws.
Deaton suggests that Coinbase may have a stronger case for this defense than Ripple, which is currently embroiled in a lawsuit with the SEC over whether its XRP token constitutes a security. Coinbase, on the other hand, has reportedly been in talks with the SEC for over six months regarding its plans to offer a lending product, indicating that it has been actively seeking guidance from the regulator.
Ripple has supported the notion of a “fair notice defense” by referencing comments made by Bill Hinman, the former SEC director of the Division of Corporation Finance. In 2018, Hinman stated that decentralized network assets, specifically Bitcoin and Ethereum, would not be considered unregistered securities.
Read also: Ripple’s Latest Filing in SEC Case; What to Expect
Thus, Ripple argues that since Hinman had previously implied that cryptocurrencies on decentralized networks are not subject to securities regulations, it was reasonable for Ripple to believe that their XRP token would also be exempt from such regulations. As such, Ripple suggests that the SEC’s decision to launch an enforcement action against them over XRP, two years after Hinman’s comments, surprised many in the industry.
Attorney John E. Deaton recently tweeted that if the SEC were to bring a case against Coinbase, it would take the “fair notice defense” to a higher level. Deaton had previously highlighted in a tweet that the SEC had approved Coinbase’s Initial Public Offering (IPO) just two years ago, based on the same disclosures that the SEC now claims could potentially violate investor protection laws.
Based on his analysis of the SEC’s enforcement actions against Ripple and the potential consequences for Coinbase, Attorney John E. Deaton has suggested that if Judge Analisa Torres ruled in favor of Ripple’s fair notice defense in the ongoing SEC v. Ripple case, Coinbase would be in a much stronger legal position.
According to a report published yesterday, Coinbase, a prominent cryptocurrency exchange in the US, has disclosed that it received a Wells notice from the SEC. The notice is a communication from the SEC informing the recipient that it intends to initiate an enforcement action against them.
However, Attorney John E. Deaton has made a speculative statement on Twitter, suggesting that Coinbase may not be the only cryptocurrency company to receive a Wells notice from the SEC, indicating the regulator’s intent to pursue enforcement action. Deaton speculates that the SEC may try to “crush the market” to give traditional financial institutions a larger market share.
The Crypto-Law founder has initiated a new campaign to raise awareness among Congress about what they perceive to be excessive control by the SEC using the “Connect to Congress” portal provided by CryptoLaw. According to the attorney, the portal has already sent more than 2,000 messages to all members of Congress. The goal of this campaign is to bring attention to the attorney’s concerns regarding the SEC’s actions in relation to cryptocurrencies.