The US regulator sued Ripple Labs in the case of raising more than $1.3 billion through a years-long sale of unregistered securities in the form of digital assets.
According to a lawsuit filed by the US Securities and Exchange Commission (SEC), Ripple co-founder Chris Larsen and CEO Brad Garlinghouse organized fundraising through the sale of XRP cryptocurrency, which is a security in fact, but did not properly register it in accordance with the US legislation. XRP buyers included residents of many countries around the world, including the United States. The offer of unregistered securities has continued since 2013, the SEC notes. Part of the issued digital assets was used to pay for various services, including for market makers.
“The registration requirements are designed to ensure that potential investors – including, importantly, retail investors – receive important information about an issuer's business operations and financial condition,” said Marc P. Berger, Deputy Director of the SEC's Enforcement Division. “Here, we allege that Ripple and its executives failed over a period of years to satisfy these core investor protection provisions, and as a result, investors lacked information to which they were entitled.”
In addition, the SEC accuses Larsen and Garlinghouse of an unregistered sale of XRP for their own enrichment for a total of $600 million.
The lawsuit was filed in federal district court in Manhattan. The SEC is seeking an injunction, seizure of illegal income with interest pending a decision, and civil fines.
“Let me be clear: Ripple, Chris and I may be the ones named in the filing, but this is an assault on crypto at large. In this case, XRP is a proxy for every other ‘alt-coin’ in the space. From there, you have a snowball effect; this isn’t good news for any market maker, exchanges like Coinbase, etc. This sets a terrible industry-wide precedent for any company working with a digital asset,” Garlinghouse commented in a blog post.
Ripple Labs lawyers recalled that “XRP, the third largest virtual currency with billions of dollars in trading every day, is a currency like the SEC has deemed Bitcoin and Ether, and is not an investment contract. This case bears no resemblance to the initial coin offering cases the SEC has previously brought and stretches the Howey standard beyond recognition.”