SEC Sues Ripple For Failing To Register XRP As Security Offering

The Securities and Exchange Commission (SEC) announced on 22 Dec that it has filed the lawsuit against Ripple Labs Inc. and two of its executives – Ripple CEO Brad Garlinghouse and cofounder Chris Larsen- for raising over $1.3 billion through an unregistered, ongoing digital asset securities offering.

As per the filing, Ripple engaged in illegal securities offering from 2013 to the present, even
though Ripple received legal advice as early as 2012 that under certain circumstances XRP could be considered an “investment contract” and therefore a security.

In a series of tweets, Ripple CEO Brad Garlinghouse calls SEC’s lawsuit out of step with other G20 countries & the rest of the U.S. government. Garlinghouse pointed out that other major branches of the U.S. government, including the Justice Department and the Treasury’s FinCEN have already determined that XRP is a currency in 2015 and other G20 regulators have done the same. No other country has classified XRP as a security.

One of the Ripple partners, SBI Holdings noted that in Japan, the Financial Service Agency (FSA) “has already made it clear that XRP is not a security,” adding that he is “optimistic that Ripple will prevail in the final ruling in the US.”

XRP price fell as much as 20%, touching lowest level in the last 30-day period.

Fostering Innovation or All-out attack on Crypto:

The lawsuit comes months after Ripple CEO tweeted about the lack of a single national regulatory framework that is putting U.S. innovation and U.S. companies at a significant disadvantage. Garlinghouse also suggested the company may relocate its headquarters outside the U.S. in response to overbearing behavior by regulators.

Bitcoin and Ethereum have been ruled by SEC as not securities years ago, partly on the grounds they are decentralized with no person or company in control of them. By contrast, Ripple executives- Ripple CEO Brad Garlinghouse and cofounder Chris Larsen engaged in offering XRP from 2013 to the present. Both executives currently own a significant amount of XRP which has led some observers to view XRP as more akin to security than a currency.

As a result, Ripple has had some issues with U.S. customers concerned about the regulatory status of Ripple’s XRP cryptocurrency. Despite being the third biggest cryptocurrency by market capitalization, only 5% of Ripple’s clients are based in the United States.