The US Securities and Exchange Commission has taken legal action against Ripple and its CEO Brad Garlinghouse and co-founder Christian Larsen.
In charges filed today in Manhattan Federal District Court, the commission alleges the XRP token is classified as collateral, accusing Ripple and the two executives of more than $ 1.3 billion through an “unregistered, ongoing offering of securities for digital assets ”investors as of 2013. The SEC also claims that Ripple distributed XRP for“ labor and market-making services ”and that Garlinghouse and Larsen reported their personal XRP sales, which amounted to $ 600 million were estimated, had not registered.
“”[These actions] Prospective buyers have been withheld adequate information about XRP and Ripple’s business, as well as other important long-term protections that are fundamental to our robust public market system, ”said Stephanie Avakian, director of the SEC’s Enforcement Division.
According to SEC regulations, individuals and crypto firms must register their offers with the commission or under an exemption if they qualify as securities. However, which tokens qualify as securities remains an extremely controversial issue. The crypto industry has long waited for clarity from the SEC or new laws on this issue.
Meanwhile, the SEC announced that Garlinghouse and Larsen failed to register XRP when it served as an investment in Ripple and enriched the couple personally. The company and its two leaders could face deterioration in profits as well as civil penalties.
News of the upcoming SEC lawsuit was released yesterday and caused XRP prices to drop sharply. At the time of publication, the token was valued at $ 0.45 after falling more than 20% in the past week. Garlinghouse responded to the charges on Twitter, saying the SEC “voted to attack crypto”.
“The SEC is doing the opposite of ‘promoting innovation’ here in the US,” Garlinghouse said, referring to the Commission’s FinHub, which announced that it would become a standalone office earlier this month. “It’s not just XRP they’re attacking here.”
Yoshitaka Kitao, Ripple board member and CEO of SBI Holdings, said he was “optimistic that Ripple will prevail in the final decision”. Kitao said he believes Japan’s financial watchdog has “already made it clear that XRP is not a security” and expected a similar outcome from US regulators.
David Schwartz, Ripple’s chief technology officer, seemed less hopeful than Kitao when he responded to the allegations on Twitter:
“The United States is one of the few countries where after years of working in full daylight and regularly keeping abreast of everything you do, the regulators turn around and tell you that you should have known You must have laws that are decades old all the time. Of course, nothing.
Garlinghouse announced the SEC’s upcoming action last night. In November, he said with the majority of RippleNet customers being based outside of the United States, a security denomination would not necessarily affect the company’s underlying business. Earlier this year, Larsen said Ripple was considering moving outside of the US amid growing frustration with the lack of clarity of regulations.