The Securities and Exchange Commission (SEC) of the United States has filed a lawsuit against Ripple Labs Inc, and two of its executives, over the unauthorised sale of $1.38 billion securities. Ripple is one the leading crypto currency and blockchain firms that has developed a real-time gross settlement system, currency exchange and remittance network.
The complaint filed with the SEC alleges that Christian Larsen, the company’s co-founder and executive chairman of its board, and Bradley Garlinghouse, the company’s current chief executive officer, began selling digital assets known as XRP back in 2013 to investors worldwide. These sales were unregistered and were raised in exchange for non-cash expenses like labour and market-making services. Further, Larsen and Garlinghouse also effected personal unregistered sales of XRP totalling approximately $600 million, it said.
“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.
XRP, Ripples’ crypto token, has a market value fell significantly on Wednesday from $21.16 billion to $16.75 billion as of mid-day December 23, according to CoinMarketCap.
According to the complaint, Ripple engaged in an illegal securities offering from 2013 to the present and since XRP acts as “investment contract”, the company has to comply under the federal securities laws. “Over a years-long unregistered offering of securities(the “Offering”), Ripple was able to raise at least $1.38billion by selling XRP without providing the type of financial and managerial information typically provided in registration statements and subsequent periodic and current filings. Ripple used this money to fund its operations without disclosing how it was doing so,or the full extent of its payments to others to assist in its efforts to develop a “use” for XRP and maintain XRP secondary trading markets,” it says.
In a statement to CoinDesk, Glaringhouse said that this an attack on the entire crypto industry and American innovation. “The SEC is fundamentally wrong as a matter of law and fact. XRP is a currency, and does not have to be registered as an investment contract. In fact, the Justice Department and the Treasury’s FinCEN already determined that XRP is a virtual currency in 2015 and other G20 regulators have done the same. No other country has classified XRP as a security,” he said.
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