The US Securities and Exchange Commission (SEC) recently filed a lawsuit against Ripple Labs and its top executives. The SEC alleges that Ripple held an unregistered securities sale for the XRP token.
Garlinghouse named in the lawsuit
The SEC lawsuit names San Francisco based- Ripple Labs, co-founder Christian Larsen, and CEO Brad Garlinghouse. According to the lawsuit filed in a Manhattan court on Monday, the company raised $1.3 billion via an unregistered security offering since 2013. Security is an investment contract that the creators of cryptocurrency advertising as an investment in the US. If it is done this way, then the coin will be considered a security under the US law.
The SEC stated in a press release,
“The defendants failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of the federal securities laws.”
Why does the XRP sale constitute a security offering?
Apart from selling the coin under the garb of an investment product, the SEC alleges that the periodic sale of 48.2 billion XRP held in an escrow account will be counted as the sale of an unregistered security. Ripple suggests that it will sell XRP in the escrow account to increase the liquidity of the currency and strengthen the XRP markets.
Note that XRP is the third-largest currency in the market, with a market cap of $20.7 billion. Earlier, the currency was called Ripple XRP by the community but the company took great pains to distance itself from the coin and call it XRP.
The suit suggests that both Larsen and Garlinghouse helped in structuring and promoting XRP sales and also undertook personal unregistered sales of the coin totaling $600 million. Ripple is not the first company under fire from the SEC. The agency recently cracked down on EOS blockchain creator Block.One for its $4 billion securities sales. It also went after messaging app Telegram for its $1.7 billion private token sales.
Ripple Slapped With a $1.3 Billion Lawsuit by SEC