XRP is a $1.3BN unregistered securities offering: SEC suit
As XRP’s price continues to fall, it remains to be seen whether Ripple, like some other cryptocurrencies, will bow down to the pressure and settle with the SEC
The United States Securities and Exchange Commission (SEC) has announced that it has taken legal action against Ripple alleging that the XRP token must be classified as a security. In charges filed today at the federal district court in Manhattan, the SEC accuses Ripple, its CEO Brad Garlinghouse and co-founder Christian Larsen of raising more than $1.3 billion through an “unregistered, ongoing digital asset securities offering” to investors since 2013.
The SEC’s further presents that Ripple distributed XRP for “labour and market-making services”, adding that the two executives have failed to register their personal XRP sales, estimated at $600 million. The charges have been filed within 24 hours of Ripple’s announcement of the same amid accusations that the SEC is destroying the US-based, consumer-friendly innovation in the process.
Individuals and crypto firms are mandated to register their offerings or file under an exemption if such offering qualifies as securities under US law. While the crypto and the legal communities have long been waiting for clarity on how to determine whether a token classifies as security, preferably through new legislation, the SEC has prosecuted several exchanges that violated federal laws against selling unlicensed securities.
In 2019, the SEC accused Block.one of raising several billion dollars over a one-year period in an unregistered initial coin offering. Despite neither admitting nor denying the charges, Block.one settled with the SEC after agreeing to pay a fine amounting to 0.58% of the initial sale proceeds of around $4 billion.
Interestingly, the settlement included a crucial waiver clause that prevented Block.one from being subjected to “certain ongoing restrictions” of the SEC and allowed the exchanges to continue the trade of EOS tokens. The company explained that, as a part of the settlement, the SEC’s objection only applied to the original ERC-20 tokens, which are no longer in circulation.
Despite claiming that an unfavourable ruling would not adversely affect its business, Ripple’s XRP has fallen more than 20% in the last week. It is thus probable that Ripple might follow other crypto exchanges that have previously been caught at the crosshairs of the SEC and settle with the regulatory body. However, Ripple stands to lose a lot if such a settlement does not cover for a Block.one type waiver.
Meanwhile, the SEC has also claimed that XRP served as an investment tool aimed at enriching Garlinghouse and Larsen personally. The firm and its two leaders are currently facing disgorgement of their gains as well as civil penalties if they choose to take it to court.
