The United States Securities and Exchange Commission (SEC) has officially charged San Francisco-based startup Ripple and its executives, Chris Larsen and Brad Garlinghouse, for conducting unregistered securities sales involving XRP.
The announcement comes less than a day after Garlinghouse disclosed that the SEC had contacted his company regarding the upcoming lawsuit. The Ripple CEO vowed to defend the lawsuit and described the SEC move ‘as an attack on crypto.’
In the lawsuit filed today in federal district court in Manhattan, the SEC alleged that Ripple and its executives violated the U.S Securities Act’s registration provisions and continue to offer XRP to investors in what is an “ongoing digital asset securities offering.”
Beginning in 2013, the SEC said Ripple had raised $1.3 billion in capital from the sale of XRP to both U.S and foreign investors to finance its business. The company also used billions of XRP that they created to purchase labor and market-making services to boost the token’s value.
The SEC further alleged that aside from structuring and promoting the sales of XRP, key executives Chris Larsen and Brad Garlinghouse sold their personal XRP holdings totaling $600 million. These personal offers and sales of XRP should also have been registered with the SEC or approved for an exemption.
Stephanie Avakian, Director of the SEC’s Enforcement Division, said in the release,
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.
As noted earlier, Ripple has said it will contest the lawsuit, claiming that several U.S agencies have in the past identified XRP as a currency instead of security like the SEC alleged.
Ripple’s response also notably included nationalistic remarks that the SEC was hurting innovation in the United States and favoring cryptocurrencies like Bitcoin and Ethereum that are dominantly operated from China. The startup also claimed that “Ripple’s XRP sales were only ever a minute fraction of overall XRP trading.”
While those claims will likely be reviewed in court, there is no denying that Ripple’s lawsuit with the SEC could set yet another precedent for the evolving cryptocurrency industry.
The last high-profile startup to contest a crypto token ‘security’ lawsuit was Canada-based messaging startup Kik Interactive. Kik ended up paying $5 million in a settlement with the regulator.
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