SEC Lawsuit Against Ripple

How Crypto Exchange Attracted a Major Upset After Following a SEC Lawsuit Against Ripple

In the last quarter of 2020, Ripple Labs Inc. and two of its executives were sued by the US Securities and Exchange Commission, SEC. The civil lawsuit claimed that the company generated approximately $1.4 billion through the unregistered offering of XRP, one of its digital assets. XRP offered by Ripple comes behind only Bitcoin and Ethereum as far as the cryptocurrency market cap is concerned.

SEC claimed that Christian Larsen, Ripple’s co-founder and the former CEO, and Bradley Garlinghouse, the current CEO, financed the firm’s business with funds obtained from selling XRP assets to investors in an unregistered securities offering.

In addition, the SEC alleged that Ripple gave out billions of XRP coins in exchange for non-monetary services, for example, labour. According to SEC’s complaint, the sale of XRP affected personal unregistered XRP sales that totalled circa $600 million. SEC, therefore, accused Larsen and Bradley of violating federal security laws since they failed to register the sales and offerings of XRP or prove that the sales and offerings were exempted from registration.

Stephanie Avakian, the then SEC’s Director of Enforcement Division, reiterated that it was a must for all issuers seeking benefits of a public offering to comply with the federal laws that oblige them to register their offerings. This also included issuers needing access to retail investors, a secondary trading market, or wide-range distribution.

The lawsuit claimed that Ripple obtained money and other non-monetary services worth over $1.38 billion from its sale of 14.6 billion units of XRP. This cash funded Ripple’s business operation and enriched Larsen and Bradley. Further, SEC accused Ripple of letting Larsen and his accomplice sell XRP while sharing information they choose to share about XRP and Ripple.

According to SEC, in 2012, Ripple got legal advice that XRP could be seen as an “investment contract” under particular situations. However, Larsen and Ripple assumed this advice. They chose to ignore the dangers of starting a large-scale distribution of unregistered XRP sales.

The lawsuit meant that cryptocurrency exchanges firms selling XRP are at risk of being sued by the SEC for permitting securities without registration to be traded. The CIO of Atlantic Financial Inc., who is also a former Bitcoin Foundation member, Bruce Fenton, sounded a cautioned crypto exchange against continuing the sale of XRP considering SEC’s charges. Bruce added that any crypto exchange firm that does not delist XRP would be out of its mind.

Better still, a group of investors had already filed a class-action lawsuit against Ripple for failing to record XRP as a security with the SEC. The same investors also accused Bradley and Ripple of giving misleading information.

It is important to remember that back in October, 2019, Bradley said that he wanted to move the firm to London because of the strict environment the United States had on digital assets in an interview with CNBC.

In a nutshell, Ripples’ Larsen, and Bradley were been charged by the SEC for violating the registration offering of the Securities Act of 1993. SEC filed the complaint in Manhattan; in a state district court, and it pursues injunctive relief and civil punishments.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.