This photo illustration of the ripple cryptocurrency ‘altcoin’ features a photo arranged on April 25, 2018 in London, England.
Jack Taylor | Getty Images News | Getty Images
Ripple, the fintech company best known for cryptocurrency XRP, has said it expects to be sued by the Securities and Exchange Commission on allegations that it has violated investor protection laws.
The SEC is to file a lawsuit against Ripple, CEO Brad Garlinghouse and co-founder Chris Larsen. It will claim that the company violated laws against the sale of unregistered securities when it sold XRP to investors.
Garlinghouse said he expects the lawsuit to be filed before Christmas. In a statement late on Monday, he said the SEC’s lawsuit was “fundamentally wrong, both in law and in fact,” and questioned the timing.
“XRP is a currency and does not need to be registered as an investment contract,” said Garlinghouse. “In fact, the Department of Justice and the Treasury’s FinCEN already determined in 2015 that XRP is a virtual currency, and other G20 regulators have done the same. No other country has classified XRP as a security.”
“The SEC has allowed XRP to function as a currency for more than eight years, and we question the motivation to take this action just days before the change in administration. Rather than providing a clear regulatory framework for crypto in the US, (SEC Chairman) Jay Clayton inexplicably decided to sue Ripple – leaving the actual legal work to the next administration. “
Clayton said last month that he would step down as chairman of the SEC at the end of the year, before his term expires in June.
The SEC was not immediately available for comment.
Why is the lawsuit important?
With a market cap of more than $ 20 billion, XRP is one of the world’s most valuable cryptocurrencies. Created and distributed by Ripple’s founders in 2012, it is designed to enable fast cross-border payments.
According to Ripple, the SEC plans to argue that XRP is a security and that Ripple has violated US laws by not registering the token with the SEC before it is listed.
The agency has won other high-profile civil lawsuits against start-ups Block.one and Kik, who say they violated securities laws by raising money through a controversial fundraising method known as an initial coin offering.
Ripple claims that XRP – just like bitcoin – should be classified as a currency and not registered as an investment contract. The company was last privately valued at $ 10 billion and is backed by Japanese financial services firm SBI Holdings, Spanish bank Santander and top venture capital firms including Andreessen Horowitz, Lightspeed and Peter Thiel’s Founders Fund, among others.
The “security” label is important because it could bring XRP under strict new rules, and that could have a major impact on Ripple. Although Ripple claims to be independent of the cryptocurrency, it owns 55 billion of the total of 100 billion XRP tokens in existence. The company even earns quarterly revenue from the sale of some of its XRP holdings.
Ripple has threatened to relocate its headquarters outside of the US over the issue, with London, Switzerland, Singapore, Japan and the UAE as possible locations.
XRP fell sharply on news of the expected SEC suit. The cryptocurrency fell nearly 18% on Tuesday to trade around 46 cents.
Like many digital coins, XRP has appreciated in value this year as major investors and companies warmed to cryptocurrencies such as bitcoin. XRP is still up about 144% to date.
Bitcoin, which hit a new all-time high above USD 23,000 last week, fell nearly 5% on Tuesday to around $ 22,748. Ether, the second largest cryptocurrency by market cap, was down more than 5% to $ 607.
The new control over Ripple comes days after the Treasury Department proposed a new bitcoin disclosure rule to close the loopholes in money laundering regulations. The rule would force crypto exchanges to take extra steps of compliance when sending money to so-called unhosted wallets that are not held on an exchange or by a bank. The Treasury gave the public only 15 days to respond to the plan.
It comes after another major company in the space, Coinbase, has filed for an initial public offering. Coinbase has criticized US proposals on certain cryptocurrency transactions, calling them an “unfortunate and disappointing departure” from previous moves, and has objected to the limited time given for a public response.