The government has filed a lawsuit against Ripple for allegedly violating investor protection laws.
San Francisco, California-based Ripple, a cryptocurrency firm, is facing a federal lawsuit from the Securities and Exchange Commission (SEC) for allegedly violating investor protection laws by profiting from unregistered securities to investors via its digital token XRP. XPR is the third most valuable cryptocurrency in the world, right behind Bitcoin and Ether, and the suit could cause a major shakeup in the industry. Brad Garlinghouse, Ripple’s chief executive, announced the notice from SEC includes as defendants the company, Garlinghouse personally, and one of the company’s founders, Chris Larsen.
XRP tokens were worth around $22 billion in December. Unlike others, however, the tokens were created and distributed by the founders of Ripple, which could mean that the company violated SEC regulations against selling unregistered securities.
SEC officials previously announced Bitcoin and Ether were, in fact, legal cryptocurrencies due to their decentralized management. However, while XRP has grown exponentially in popularity and is traded all over the world, the fact that Ripple’s management owns a significant portion is at issue. Its executives have indicated that the profits are held in reserves to be sold over time, which it states it doesn’t have any control over.
“It’s frankly preposterous and not grounded in fact,” Garlinghouse said. “We are very confident in our position.” He added, Make no mistake, we are ready to fight and win – this battle is just beginning.”
Referencing Jay Clayton, a senior official of the SEC, soon to be ended his term, he stated, “Clayton did this with one foot out the door. Rather shamefully, he has decided to sue Ripple, and leave the legal work to the next chairman…I think we have to stand up for all of crypto – and not let the SEC bully the entire industry. We’re going to be on the right side of history.”
Garlinghouse also explained the majority of Bitcoin and Ethereum was created in China, while Ripple is an American company, and thus, it should be supported by federal officials.
“It’s not just Grinch-worthy, it’s shocking,” he said of the announcement that came around the holidays. “It’s an attack on the entire crypto industry and American innovation.” Because of claims of excessive regulation, just months ago, Ripple executives were looking to relocate the company’s headquarters outside the U.S.
The SEC previously won a lawsuit it filed against messaging app Kik, which issued cryptocurrency tokens after the court declared the tokens were, in fact, unlicensed securities. Kik sold its tokens directly to investors during the “crypto bubble” of 2017, and there are many differences between the two cases. Namely, while the move by Kik defied SEC guidelines, there were no guidelines available when Ripple began to market its tokens.
Ripple Labs was first established in 2012 and was named as one of 2014’s 50 Smartest Companies in the February 2014 edition of MIT Technology Review. As of late, cryptocurrency has become more popular and investors are getting into the game, hoping to realize significant returns.