SEC Files Lawsuit Against Ripple Over $1.3 Billion Unregistered Securities Sale

The US SEC on Tuesday filed a lawsuit against Ripple, and two of its executives for conducting what the regulator alleged to be a $1.3 billion unregistered securities sale. 

December 23, 2020 | AtoZ Markets – The US Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple, the fintech company best known for cryptocurrency XRP. The agency claims that the California-based firm has been selling unregistered securities in the form of XRP tokens to retail investors for 7 years.

SEC charges Ripple with conducting a $1.3 billion unregistered securities offering

The SEC said that during this period, Ripple raised $1.3 billion. The screenshot below shows that sales to retail investors have exceeded the same institutional indicator.

The defendants are also CEO Brad Garlinghouse and co-founder Chris Larsen, whom the agency calls “major security holders.” According to the document, together, both sold tokens for $600 million. Garlinghouse, on the other hand, said in public that he was “playing long”, hinting that he was holding his tokens, in fact selling them.

Ripple paid for various services with tokens, including market making, according to the Commission.

According to the authors of the document, the payment network based on the XRP On-Demand Liquidity (ODL) token has attracted only 15 enterprises from the field of money transfers, among which there are no banks. The reason for this is supposedly high costs, which ODL is designed to solve.

The SEC found that Ripple is subsidizing the use of this solution by customers, which makes cooperation attractive for the latter. For example, in the second quarter of this year, MoneyGram received $15 million from Ripple in incentives.

It follows from this that Ripple actually paid customers to provide volumes on ODL.

The document also quotes Ripple CTO, David Schwartz:

“Ripple’s public strategy has been to do whatever is necessary to maximize the price of XRP during the period that allows us to sell what we have.”

The lawsuit will be considered by the federal court for the Southern District of New York. The SEC accuses the defendants of violating the registration clause of the Securities Act (1933) and demands an injunction against further sales, the return of all collected funds with compensation, and payment of civil fines.

XRP price reacted to the news with a precipitous fall.

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