The past week saw a flurry of new and eyebrow-raising updates in some of the legal battles against the crypto space and its major players. Bloomberg's senior litigation analyst Elliott Stein expressed a strong belief in Coinbase's potential to win its lawsuit against the SEC, even citing a 70% chance of a full dismissal.
Meanwhile, Ripple is currently contesting the SEC's late request for additional financial documents, arguing that the deadline for requests like this has passed. In a separate case, Marco Ochoa, the former CEO of IcomTech, has been sentenced to five years in prison for his role in a crypto-based Ponzi scheme.
A Promising Outlook for Coinbase in SEC Dispute
Bloomberg's senior litigation analyst, Elliott Stein, recently shared his belief that there is a strong likelihood that Coinbase could win its high-profile lawsuit against the United States Securities and Exchange Commission (SEC).
Stein initially had some reservations about Coinbase's ability to counter the SEC's allegations, particularly those concerning its staking rewards program and operational structure. However, his perspective shifted dramatically after a five-hour court hearing. He entered the courtroom with the belief that Coinbase might successfully dismiss the SEC's primary claims, and left with a conviction that Coinbase has a 70% chance of a full dismissal of the lawsuit.
The SEC's lawsuit hinges on the argument that Coinbase, by staking customer assets, earning rewards, and returning them, is essentially offering and selling investment contracts, thus falling under SEC regulation. Additionally, the SEC accuses Coinbase of operating as an unregistered broker, a claim that Coinbase vehemently denies, pointing out the lack of a straightforward pathway for crypto exchanges to register for a license.
A pivotal moment in the hearing was when Coinbase presented a more precise definition of an “investment contract” compared to the SEC's interpretation. Stein found Coinbase's definition, which emphasized investment in a business rather than just an ecosystem, much more compelling.
Stein also referenced the SEC vs. Ripple case, where Ripple secured a partial victory in July of 2023. The ruling stated that XRP is not considered a security in the context of retail sales on cryptocurrency exchanges. This precedent, Stein suggests, could certainly influence the outcome of Coinbase's lawsuit. He also argues that the sale of digital assets on public exchanges does not neatly fit into the Howey test, which is a traditional method used to determine what can be considered an investment contract.
Ripple Objects to SEC's Post-Deadline Document Demands
Meanwhile, In the ongoing legal battle between Ripple Labs and the SEC, Ripple's lawyers recently challenged the SEC's request for additional financial documents. The legal team argues that this request is invalid as the deadline for such material has already passed and the information being asked for is not important for the upcoming trial scheduled for April.
The conflict arose when, on Jan. 11, the SEC demanded Ripple to produce audited financial statements for 2022 and 2023. Ripple's legal team, however, countered this request in a court filing on Jan. 19, pointing out that the deadline for requesting material during the fact discovery phase already concluded in August of 2021. They argued that the SEC had more than enough time to ask for any necessary material earlier and should not be allowed to extend this period unilaterally.
Ripple stressed that the court should not be influenced by the SEC's poor portrayal of the company. The legal team also noted that the SEC already exhausted its quota of interrogatories – a set of written questions to be answered by Ripple before the trial. Therefore, according to Ripple's lawyers, the SEC cannot grant itself additional interrogatories at this stage.
The lawsuit, which began in December of 2020, involves the SEC accusing Ripple of raising funds through the sale of unregistered securities via XRP. However, Ripple was able to achieve a partial victory in July of 2023 when a judge ruled that XRP is not a security in the context of programmatic sales on crypto exchanges.
From CEO to Convict in Crypto Scandal
In other news, Marco Ochoa, the former CEO of IcomTech, has been sentenced to five years in prison. This sentence comes after Ochoa's guilty plea for conspiracy to commit wire fraud. The sentencing was finalized in a filing on Jan. 19 in the United States District Court for the Southern District of New York, where Judge Jennifer Rochon also ordered Ochoa to forfeit $914,000. He is scheduled to voluntarily surrender for his 60-month sentence starting Mar. 19, which will then be followed by two years of supervised release.
Ochoa's involvement in a crypto-based Ponzi scheme at IcomTech led to his guilty plea in September of 2023. He served as the CEO of the mining firm from 2018 to 2019. U.S. Attorney Damian Williams highlighted the big role Ochoa played in scaling IcomTech and causing harm to many victims. The company, which was operational until its collapse three years before the charges, promised investors daily returns on investment products but failed to allow withdrawals of funds. This led to the charging of Ochoa and other IcomTech executives in November of 2022.
David Carmona, the founder of IcomTech, also pleaded guilty to conspiracy to commit wire fraud in December of 2023. While four other former executives of the company have entered various pleas, Ochoa is the first among them to receive a sentence.
This case is just one of many involved in the crackdown by U.S. authorities on fraudulent activities in the cryptocurrency sector. In the past year, many prominent figures in the crypto world have faced legal challenges. Former FTX CEO Sam Bankman-Fried was found guilty of seven felony charges and is awaiting sentencing in March. Additionally, Changpeng Zhao, the former CEO of Binance, also pleaded guilty to a felony count as part of a plea agreement with prosecutors.
The sentencing of Marco Ochoa marks a significant moment in the ongoing efforts to regulate and address fraudulent practices in the rapidly evolving cryptocurrency industry. It serves as a reminder of the legal and ethical responsibilities of those operating in this space.
