News of the action pummeled the price of the XRP token at a time of surging demand for cryptocurrencies by institutional investors.
The US Securities and Exchange Commission has charged Ripple Labs and two executives with violating federal securities laws by selling XRP cryptocurrency to investors around the world in an unregistered securities offering. The US regulator alleges that the San Francisco–based fintech raised $1.3 billion over a seven-year period, and names Ripple Chairman Chris Larsen and the company’s current CEO, Bradley Garlinghouse, in the suit. Ripple used the money to fund its operations, according to the SEC.
News of the action pummeled the price of the XRP token at a time of surging demand for cryptocurrencies by institutional investors. Following the SEC announcement in late December, XRP’s price more than halved on several digital currency exchanges, with US clients moving quickly to halt trading in the cryptocurrency.
“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 disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system,” said Stephanie Avakian, the SEC’s director of enforcement, in a statement.
Ripple vehemently denies the allegations, and has long claimed that Ripple, the company and XRP, the cryptocurrency, are separate entities. Although the SEC acknowledges XRP II as Rip-ple’s wholly owned subsidiary, it criticizes a significant overlap in business operations.
Ripple has scored major business wins with international banks and financial institutions, including Santander and MoneyGram. But the SEC cites Ripple’s “On Demand Liquidity” solution, which leverages XRP as a bridge between two currencies to free up capital, as an example in the suit.
Ripple was recently valued at $10 billion following a funding round, but there are signs of mounting unease among Ripple’s investors. In January, Grayscale Investments—the world’s largest digital currency asset manger—reportedly began dissolution of its Grayscale XRP Trust.
Meanwhile, Tetragon Capital is suing Ripple to redeem the Series C preferred stock owned by Tetragon, and is seeking to block Ripple from using any cash or other liquid assets until the payment is made.
Ripple Labs didn’t respond to a request for comment at the time of writing.