This photo illustration shows a visual representation of the digital Cryptocurrency Ripple on January 30, 2018 in Paris, France.
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The price of XRP plunged again on Wednesday after the U.S. Securities and Exchange Commission filed a lawsuit alleging that Ripple, a blockchain company with ties to the cryptocurrency, conducted an unregistered $ 1.3 billion securities offering.
XRP fell nearly 25% to about 35 cents Wednesday morning, according to data from cryptocurrency market site CoinDesk. The virtual currency fell a whopping 17% on Tuesday after Ripple said it anticipated and would fight legal action.
The SEC is suing Ripple and two of its executives, CEO Brad Garlinghouse and co-founder Chris Larsen. At the heart of the federal agency’s complaint is the allegation that XRP should be treated as a security, like a share in a company, rather than as a currency.
“We allege that Ripple, Larsen and Garlinghouse have failed to record their ongoing offering and sale of billions of XRP to retail investors, leaving potential buyers inadequate for adequate information on XRP and Ripple’s operations and other important long-term protections fundamental to our robust public market system,” said Stephanie Avakian, director of the SEC’s Enforcement Division.
Ripple denies this and states that XRP is a currency and does not have to be registered as an investment contract. The company questioned the timing of the lawsuit – SEC Chairman Jay Clayton will step down shortly – and said the US government and other regulators had previously given XRP currency status.
XRP lost its place as the world’s third most valuable cryptocurrency, with tether – a dollar-linked token that investors often use to trade crypto – surpassing it in value Wednesday, according to CoinMarketCap data.
The “security” label is important because it could bring XRP under strict new rules, and this would have a major impact on Ripple. Ripple owns 55 billion of the total of 100 billion XRP tokens in existence and even earns from selling some of its XRP holdings every quarter.
XRP was created and distributed by the founders of Ripple in 2012 and aims to enable fast cross-border money transfers. The price of XRP has risen along with bitcoin and other cryptocurrencies this year, but is still about 90% lower than its peak in late 2017.
The Ripple 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.
Ripple had threatened to move its headquarters outside of the US due to a lack of regulatory clarity in the US, with London, Switzerland, Singapore, Japan and the UAE as potential locations.