SEC Filed a Lawsuit Against Ripple

SEC Filed a Lawsuit Against Ripple


The US Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple. The agency claims that the Californian blockchain company has been selling unregistered securities in the form of XRP tokens to retail investors for seven years.

SEC charges Ripple and two executives with conducting $1.3 billion unregistered securities offering https://t.co/3VP23RpSyV

— SEC_News (@SEC_News) December 22, 2020

The SEC said that during this period, Ripple raised $ 1.3 billion. The screenshot below shows that sales to retail investors have exceeded the same institutional indicator.

They sold more to the XRP army than they did to actual institutions LMFAO jesus pic.twitter.com/Vs3iJgRXZ7

– KING CO ฿ IE 🌙 (@CryptoCobain) December 22, 2020

The defendants are also CEO Brad Garlinghouse and co-founder Chris Larsen, whom the agency calls “major security holders.” According to the document, together, both sold tokens for $ 600 million. Garlinghouse, on the other hand, said in public that he was “playing along”, hinting that he was holding his tokens, in fact selling them.

Garlinghouse often talked about how he was «very long» XRP without disclosing that he was selling 321 million XRP to lock in a fortune. pic.twitter.com/53dd9ENTEQ

— Nathaniel Popper (@nathanielpopper) December 22, 2020

Ripple paid for various services with tokens, including market making, according to the Commission.

According to the authors of the document, the payment network based on the XRP (On-Demand Liquidity, ODL) token has attracted only 15 enterprises from the field of money transfers, among which there are no banks. The reason for this is supposedly high costs, which ODL is exactly designed to solve. The SEC found that the Californian company is subsidizing the use of this solution by customers, which makes cooperation attractive for the latter. For example, in the second quarter of this year, MoneyGram received $ 15 million from Ripple in incentives.

Ripple’s CEO often talked up the value of XRP by citing the intense interest from the financial industry.

The SEC says that today only a few companies are using it and they are only doing so because of big payments from Ripple. pic.twitter.com/0Bnx0tzJ7Z

— Nathaniel Popper (@nathanielpopper) December 22, 2020

It follows from this that Ripple actually paid customers to provide volumes on ODL.

Perhaps the single most damning details from the Ripple complaint:

The main financial company using XRP, a money transmitter, told Ripple it was much more expensive than alternatives and only agreed to use it because Ripple was paying it to do so. pic.twitter.com/h9ZJVnGAQC

— Nathaniel Popper (@nathanielpopper) December 22, 2020

The document also quotes Ripple CTO, David Schwartz:

“Ripple’s public strategy has been to do whatever is necessary to maximize the XRP price over a period that allows us to sell what we have.”

The lawsuit will be considered by the federal court for the Southern District of New York. The SEC accuses the defendants of violating the registration provision of the Securities Act (1933) and demands an injunction against further sales, the return of all collected funds with compensation, and payment of civil fines.

XRP price reacted to the news with a precipitous fall.

Ripple precipitous fall
Graph: TradingView

Recall that Ripple warned the community about the impending lawsuit in advance.

Even before the actual filing, Brad Garlinghouse said that it was an attempt by the outgoing SEC Chairman Jay Clayton “to limit innovation in the industry to Bitcoin and Ethereum.” In one of the documents, Ripple calls itself “the best alternative to bitcoin.” In the same place, the company calls Bitcoin and Ethereum “virtual currencies under the control of China.”

Ripple declares itself “a better alternative to Bitcoin” and Bitcoin and Ether “Chinese-controlled” in a last ditch effort to save themselves. Have you no modesty @Ripple? No shame? Https: //t.co/GqRzoKaGuK pic.twitter.com/81zOM9k2uN

– Fred Ehrsam (@FEhrsam) December 22, 2020

According to the top manager, Trump administration officials are trying to finally harm the industry. He expects more understanding from the Biden government — he was one of the sponsors of his campaign.

Ripple is ready for legal battles and has promised to stand up for the entire industry.

In late November, Garlinghouse said that the recognition of XRP as a security in the US would not disrupt the company’s business, since 90% of RippleNet’s clients are located in other countries. A month earlier, Larsen had threatened that Ripple would leave the US because of a “terrible lag” in regulation.

This is not the first lawsuit against the company — it is the second year that it is suing investors who consider XRP to be an unregistered security. Ripple and Garlinghouse are listed as defendants and in the claim from Bitcoin Manipulation Abatement LLC, which is overseen by attorney Pavel Pogodin.

In December 2019, Ripple closed a $ 200 million Series C funding round, then the company was valued at $ 10 billion.

AO/X Staff
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