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 and two executives with conducting $1.3 billion unregistered securities offering https://t.co/3VP23RpSyV— SEC_News (@SEC_News) December 22, 2020
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.
They sold more to the XRP army than they did to actual institutions LMFAO jesus pic.twitter.com/Vs3iJgRXZ7— KING CO฿IE 🌙 (@CryptoCobain) December 22, 2020
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.
Garlinghouse often talked about how he was "very long" XRP without disclosing that he was selling 321 million XRP to lock in a fortune. pic.twitter.com/53dd9ENTEQ— Nathaniel Popper (@nathanielpopper) December 22, 2020
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.
Ripple's CEO often talked up the value of XRP by citing the intense interest from the financial industry.— Nathaniel Popper (@nathanielpopper) December 22, 2020
The SEC says that today only a few companies are using it and they are only doing so because of big payments from Ripple. pic.twitter.com/0Bnx0tzJ7Z
It follows from this that Ripple actually paid customers to provide volumes on ODL.
Perhaps the single most damning details from the Ripple complaint:— Nathaniel Popper (@nathanielpopper) December 22, 2020
The main financial company using XRP, a money transmitter, told Ripple it was much more expensive than alternatives and only agreed to use it because Ripple was paying it to do so. pic.twitter.com/h9ZJVnGAQC
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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