Ripple’s CTO and CoFounder of the XRP Ledger, David Schwartz, took to Twitter to criticize the SEC’s actions following the news of Coinbase receiving a Wells notice, which is usually a prelude to an enforcement action. In a series of tweets, Schwartz suggested that the SEC’s actions may be motivated by incompetence or a desire to protect insiders and early investors.
He expressed frustration with the SEC’s application of the Howey test, stating that it is not as simple as some people believe and the agency is struggling to determine whether Ethereum (ETH) is an unregistered security.
Schwartz’s comments were echoed by former blockchain lead of Meta, David Marcus, who noted that even the top securities lawyers at major law firms don’t know how the Howey test applies to many tokens. Some members of the XRP community expressed disappointment with the industry’s failure to stand together when Ripple was under fire, suggesting that the industry may now be weaker as a result.
Coinbase commented on the SEC’s actions in a blog post, expressing disappointment that they had asked for “reasonable crypto rules” for Americans and had instead received legal threats. The company had met with the SEC over 30 times in the past nine months, sharing details of its business to build a path to registration, but had received “basically 0 feedback on what to change or how to register,” according to Coinbase.
The company noted that when it filed to go public in 2021, its S1 described its business in much detail, including references to staking and details on its asset listing process. The SEC approved the filing, knowing those details, but has now changed its mind on what is allowed. Meanwhile, Ripple has been engaged in a legal battle with the SEC since late 2020, with the case expected to conclude in the first half of 2023.