Is XRP Just the Start for The SEC’s Cryptocurrency Regulation?
The main complaint of the SEC is that XRP is engaging in the sale of securities. So the question at hand is, is Ripple XRP a security? Unfortunately, I have to say yes. They controlled the release. they control the supply and they grant or deny permission to make transactions on their network. It is not decentralized enough to circumvent the law.
If you ask me if I think Ripple XRP should be punished or destroyed for breaking the law I say no because although Ripple XRP is not a true crypto it has been a player in the game and has helped bring the concept of cryptographically secure currency into focus for so many people. In this case the good that the company has done outweighs the “bad”. I’m not really sure if breaking the securities law is “bad”. They probably will wind up paying a fine, add some transparency to the way the company operates and it will be business as usual.
This is directly from the SEC’s website
1. From at least 2013 through the present, Defendants sold over 14.6 billion units of a
digital asset security called “XRP,” in return for cash or other consideration worth over $1.38 billion
U.S. Dollars (“USD”), to fund Ripple’s operations and enrich Larsen and Garlinghouse. Defendants
undertook this distribution without registering their offers and sales of XRP with the SEC as
required by the federal securities laws, and no exemption from this requirement applied.
Case 1:20-cv-10832 Document 4 Filed 12/22/20 Page 1 of 71
2. Because Ripple never filed a registration statement, it never provided investors with
the material information that every year hundreds of other issuers include in such statements when
soliciting public investment. Instead, Ripple created an information vacuum such that Ripple and
the two insiders with the most control over it—Larsen and Garlinghouse—could sell XRP into a
market that possessed only the information Defendants chose to share about Ripple and XRP.
3. Ripple engaged in this illegal securities offering from 2013 to the present, even
though Ripple received legal advice as early as 2012 that under certain circumstances XRP could be
considered an “investment contract” and therefore a security under the federal securities laws.
4. Ripple and Larsen ignored this advice and instead elected to assume the risk of
initiating a large-scale distribution of XRP without registration.
5. From a financial perspective, the strategy worked. Over a years-long unregistered
offering of securities (the “Offering”), Ripple was able to raise at least $1.38 billion by selling XRP
without providing the type of financial and managerial information typically provided in registration
statements and subsequent periodic and current filings. Ripple used this money to fund its
operations without disclosing how it was doing so, or the full extent of its payments to others to
assist in its efforts to develop a “use” for XRP and maintain XRP secondary trading markets.
6. Meanwhile, Larsen—Ripple’s initial chief executive officer (“CEO”) and current
chairman of the Board—and Garlinghouse—Ripple’s current CEO—orchestrated these unlawful
sales and personally profited by approximately $600 million from their unregistered sales of XRP.
7. Garlinghouse did so while repeatedly touting that he was “very long” XRP, meaning
he held a significant position he expected to rise in value, without disclosing his sales of XRP.
8. Defendants continue to hold substantial amounts of XRP and—with no registration
statement in effect—can continue to monetize their XRP while using the information asymmetry
they created in the market for their own gain, creating substantial risk to investors.
Case 1:20-cv-10832 Document 4 Filed 12/22/20 Page 2 of 71
9. By engaging in the conduct set forth in this Complaint, Defendants engaged in and
are currently engaging in the unlawful offer and sale of securities in violation of Sections 5(a) and
5(c) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a) and 77e(c)], and Larsen and
Garlinghouse also aided and abetted Ripple’s violations of those provisions.
10. Unless Defendants are permanently restrained and enjoined, they will continue to
engage in the acts, practices, and courses of business set forth in this Complaint and in acts,
practices, and courses of business of similar type and object.