The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple, CEO Brad Garlinghouse, and co-founder Chris Larsen for conducting what the regulator alleged to be a $1.3 billion unregistered securities sale. The SEC alleged that Ripple raised funds, beginning in 2013, by selling digital assets known as XRP in an unregistered securities offering to investors in the U.S. and worldwide. The complaint adds Ripple also allegedly distributed billions of XRP in exchange for non-cash consideration, such as labor and market-making services.
The defendants failed to register their offers and sales of XRP.
According to the complaint, in addition to structuring and promoting the XRP sales used to finance Ripple’s business, Larsen and Garlinghouse also affected personal unregistered sales of XRP, totaling approximately $600 million. The complaint further alleges that the defendants failed to register their offers and sales of XRP or satisfy an exemption from registration, violating the registration provisions of the federal securities laws. The exchange commission alleges that Ripple and its executives failed to register their ongoing offer and sale of billions of XRP to retail investors.
Ripple intends to fight the lawsuit.
Ripple CEO Brad Garlinghouse said that they plan to fight the lawsuit in a series of Tweets. Garlinghouse noted that the SEC – out of step with other G20 countries & the rest of the U.S. govt – should not be able to cherry-pick what innovation looks like (especially when their decision directly benefits China). “We are ready to fight and win – this battle is just beginning,” he wrote. The blockchain firm has maintained an escrow account of around 50 billion XRP, or around half of the total supply, which the CTO David Schwartz claims to have been ‘gifted’ by the creators of the third-largest cryptocurrency.