The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple Labs Inc., the blockchain payments company known for the cryptocurrency XRP, on Tuesday, December 22. Ripple has been accused of misleading investors in XRP and conducting US$1.3 billion unregistered securities.
With the allegation, XRP shrunk nearly 25% to around 35 cents on Wednesday morning, according to CoinDesk.
The SEC has filed the lawsuit against Ripple co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse too. The federal agency alleged that Larsen and Garlinghouse also orchestrated personal unregistered sales worth US$600 million.
Stephaine Avakian, director of the SEC’s Enforcement Division, said, “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 disclosure about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”
The SEC claims that XRP should be treated as a security rather than a currency, whereas Ripple differs insisting XRP is a currency.
Reacting to the lawsuit, Garlinghouse said the case was “an assault on crypto at large”, in a message to employees that was posted on the company blog. He also blamed that the SEC didn’t want to foster innovation in the digital asset space.
Ripple had already expected the lawsuit to be filed by the SEC against them.
Ripple’s CEO Garlinhouse, in a statement on Monday (Dec. 21), asserted that the SEC’s suit was “fundamentally wrong as a matter of law and fact” and questioned its timing.
He said, “XRP is a currency, and does not have to be registered as an investment contract. In fact, the Justice Department and the Treasury’s FinCEN already determined that XRP is a virtual currency in 2015 and other G20 regulators have done the same. No other country has classified XRP as a security.”
“The SEC has permitted XRP to function as a currency for over eight years, and we question the motivation for bringing this action just days before the change in administration. Instead of providing a clear regulatory framework for crypto in the U.S., (SEC Chairman) Jay Clayton inexplicably decided to sue Ripple – leaving the actual legal work to the next Administration.”
Showing concerns over the lack of regulatory uncertainty in the U.S., San Francisco-based Ripple had warned that the company might move its headquarters outside of the U.S. back in early October.
XRP is a digital asset and cryptocurrency, like bitcoin, designed for payments and money transfers. It was created and distributed, in 2012, by Ripple Labs. Currently, XRP is the world’s third-largest cryptocurrency, after Bitcoin and Etherium, according to CoinMarketCap.
Out of a total of 100 billion XRP, Ripple possesses 55 billion XRP, and it also sells its XRP to draw revenue. Ripple has sold about $1.2 billion XRP so far according to Messari – an online database for the crypto industry.