The SEC named the company, its co-founder Christian Larsen and CEO Bradley Garlinghouse in the complaint, which alleges they have been improperly raising capital since 2013 through the sale of digital asset XRP. According to the SEC, the sale constitutes an unregistered security offering to investors both in the U.S. and beyond.
“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.
FROM TWITTER
Alex Krüger @krugermacro Dec 24
"I'd like Ripple to win the unregistered securities lawsuit regardless of my opinion of the company. $XRP labeled as a security would be in nobody's interest. It's too late. Too many holders. But if proven to have manipulated prices, Ripple should pay. That's a separate issue."
The SEC complaint claims Ripple distributed XRP in exchange for things like market-making services and labor; these are considered non-cash considerations. Further, the complaint also alleges Larsen and Garlinghouse “effected personal unregistered sales” of the token that raised close to $600 million.”
“The registration requirements are designed to ensure that potential investors–including, importantly, retail investors–receive important information about an issuer’s business operations and financial condition,” said Marc P. Berger, deputy director of the SEC’s Enforcement Division. “Here, we allege that Ripple and its executives failed over a period of years to satisfy these core investor protection provisions, and as a result investors lacked information to which they were entitled.”
As a result of the lawsuit, Coinbase announced in a blog post penned by Paul Grewal, the company’s chief legal officer, they plan to suspend XRP trading beginning on Tuesday, Jan. 19 at 10 a.m. PST. Trading was shifted to “limit only” on Monday, Dec. 28 ahead of the late-January full suspension.
“The trading suspension will not affect customers’ access to XRP wallets which will remain available for deposit and withdraw functionality after the trading suspension,” reads the blog. “Further, customers will remain eligible for the previously announced Spark airdrop (subject to approval in certain jurisdictions), and we will continue to support XRP on Coinbase Custody and Coinbase Wallet.”
The entry also notes trading may be suspended ahead of schedule in order to “maintain our market health metrics.”
The SEC’s complaint was filed in a Manhattan federal district court and charges the defendants, specifically, with violating registration provisions in the Securities Act of 1933 and it seeks “injunctive relief, disgorgement with prejudgment interest, and civil penalties.”
“Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution and a secondary trading market, must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies,” added Avakian.
