In a series of tweets, Schwartz criticized the SEC’s actions, suggesting that they may be motivated by incompetence or a desire to protect insiders and early investors.
Schwartz’s comments were in response to Coinbase receiving a Wells notice from the SEC, which typically precedes an enforcement action.
“Unless you wanted to allow the founders, insiders, and early investors to profit and then shift much of the losses due to this litigation onto a large number of retail investors. I guess it could also just be incompetence that they didn’t notice this sooner,” he tweeted.
The Ripple executive questioned the SEC’s motivation behind the recent enforcement action. “If this is the SEC protecting American investors, imagine if they tried to hurt them,” he quipped.
He expressed frustration with the SEC’s application of the Howey test, which he described as not being simple as some people believe since the agency struggles to determine whether or not Ethereum (ETH), the second-largest cryptocurrency, is an unregistered security.
His comments echo those made by Meta’s former blockchain lead David Marcus who noted that even the top securities lawyers at major law firms don’t know how it applies to many tokens.
Some members of the XRP community also 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, saying that they had asked for “reasonable crypto rules” for Americans and had instead received legal threats.
The company said that it had met with the SEC more than 30 times over the past nine months, sharing details of its business to build a path to registration. However, the SEC had given “basically 0 feedback on what to change, or how to register,” according to Coinbase.
The company also 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, according to Coinbase.
Ripple has been enmeshed in a gruesome legal battle with the SEC since late 2020. It is expected to come to an end in the first half of 2023.