The U.S. Securities and Exchange Commission has alleged that Ripple Labs executives Bradley Garlinghouse and Christian Larsen manipulated the XRP price by increasing or slowing their coin sales based on market conditions.
In an amended complaint filed on February 18, the plaintiff – the US Securities and Exchange Commission – reiterated its stance that Ripple Labs, Christian Larsen and Brad Garlinghouse broke securities laws by selling XRP coins starting in 2013:
“From at least 2013 to date, Defendants have sold more than 14.6 billion units of a digital asset security called ‘XRP’ for cash or other consideration valued at over $ 1.38 billion US dollars (‘USD’) to fund and enrich the business of Ripple and Larsen and Garlinghouse. ”
The complaint alleges that Ripple received legal counsel back in 2012 that his coin might constitute a security offer and that he ignored it. From a financial perspective, the complaint said, the strategy worked, and Ripple raised “at least $ 1.38 billion” in the years that followed.
The file alleges that Larsen and Garlinghouse subsequently benefited from their $ 600 million unregistered XRP sales. The SEC notes that these sales took place while Garlinghouse repeatedly confirmed that he was “very long” on XRP – suggesting that investors were misled when Garlinghouse and Larsen paid out:
“Ripple created an information vacuum in which Ripple and the two insiders with the greatest control over it – Larsen and Garlinghouse – could sell XRP to a market that only owned the information that the defendants exchanged about Ripple and XRP.”
The complaint describes a case in 2015 where one of Ripple’s market makers, whom he also paid in XRP, temporarily stopped selling Garlinghouse and Larsen’s XRP holdings because the coin price was already falling.
According to the filing, Larsen directed the market maker to “keep [sales] stopped for the time being “and”[w]ait to [the] The market had recovered from this mistake. “
A similar incident in 2016 described how the defendants were forced to adjust their net sales targets in hopes of “stabilizing and / or increasing” a difficult XRP coin price. Larsen and Garlinghouse agreed to lower the rate of their XRP sales, but Garlinghouse added that he “had only a slight tendency to be more aggressive when we do this”.
The SEC notes that the “information asymmetry” caused by the defendants persists, allowing them to continue selling XRP at “significant risk to investors.”
Ripple General Counsel Stuart Alderoty said he was disappointed with the SEC’s late attempt to file a lawsuit against Ripple Labs after years of inaction. On February 18, Alderoty said the latest amended complaint had raised nothing new and reiterated that there was only one legal issue left to resolve. Alderoty tweeted:
“As many of you have seen, the SEC filed an amended complaint today. The only legal claim remains: Were certain XRP distributions an investment contract? The disappointing SEC had to try to “fix” its complaint after waiting years to file it in the first place … “
In 2020, former chairman of the Commodity Futures Trading Commission, Chris Giancarlo, argued that XRP should not be viewed as an offering of securities, arguing that it did not meet the criteria set out in the Howey Test.
Giancarlo had previously stated that neither Bitcoin (BTC) nor Ether (ETH) were security offers, which earned him the nickname “Crypto Dad” in the cryptosphere.
However, there may be a conflict of interest. As Forbes reported at the time, the law firm represented by Giancarlo – Willkie Farr & Gallagher LLP – also acted as legal advisor to Ripple. Giancarlo’s assessment that XRP is not a security “also relied on certain factual information provided by Ripple,” the article reads.
