Earlier today, CNN reported that the Securities and Exchange Commission (SEC) sued Ripple crypto, and two of its executives, for selling XRP crypto. The outlet reported that the suit was a “$1.3 billion securities fraud,” and XRP stock plunged almost immediately after the announcement was made.
But is this really a case of securities fraud, or just a big misunderstanding? Let’s have a look.
Ripple Crypto: The SEC Filing
According to a statement by the SEC, Ripple crypto and its CEO illegally marketed XRP (NYSE: XRPLX) to customers. The cryptocurrency, which is the third-largest cryptocurrency in the world, was sold without the company securing a registration, or a registration exemption, for the sales. As a result, the SEC alleges that the sales were illegal.
“On top of that, the company also allegedly received services, including labor and market-making, in exchange for the XRP offering. [Former CEO Christian] Larsen and [current CEO Bradley] Garlinghouse also orchestrated personal unregistered sales worth $600 million,” the SEC alleged to CNN.
The lawsuit may spell the kiss of death to Ripple crypto, which is especially concerning, given that cryptocurrency is currently in the midst of an economic boom, and it only promises to get more valuable with time.
Garlinghouse, for his part, took to the Ripple crypto blog to declare that the SEC was “attacking” cryptocurrency at large, and even took to Twitter to threaten to move the company’s base of operations overseas if if the regulatory view on cryptocurrencies in the United States wouldn’t get clarified. (For what it’s worth, other experts have also claimed that cryptocurrency is in the “wild West” stages of trading in the United States, but this proclamation doesn’t necessarily help Garlinghouse’s case.)
“This is all based on their illogical claim that XRP is, in their view, somehow the functional equivalent of a share of stock. What’s more, for them to say that XRP has been a security all along and that Ripple, Chris and I should have known makes absolutely no sense… particularly when the US Treasury and US Department of Justice have long ago concluded that XRP is a currency. Our entire AML/BSA compliance program is built on the fact that XRP is a currency! When you marry this with the fact that many other G20 governments call XRP a currency, it is truly confounding that the SEC would take this step,” he writes.
Unsurprisingly, the price of XRP stock took a huge tumble in the wake of the alleged illegal Ripple crypto sales.
But the question still remains: should XRP be treated as a currency, or as a security? While Ripple’s CEO claims it’s the former, the SEC claims it’s the latter.
“We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system,” said Stephanie Avakian, director of the SEC’s Enforcement Division, to CNBC.
The timing of the lawsuit is certainly suspicious — especially given that there will be a proverbial changing of the guard in Washington next month — but if the ruling goes to the SEC’s favor, it could be devastating for Ripple crypto, as the company owns 55 billion of the total 100 billion XRP tokens in existence.
For now, we’re all playing the “wait and see” game, and it will be interesting to see what Ripple crypto offers as a defense or proof that XRP is, indeed, a currency.