Ripple Inc. Said it would defend a lawsuit by the Securities and Exchange Commission that claimed the company had violated investor-protection laws when it sold digital assets such as bitcoin called XRP.
The lawsuit, which has not yet been filed, would be one of the highest-profile SEC actions against cryptocurrency pioneers, such as the departure of the chairman of the regulator at the end of the Trump administration. Over the years the SEC has brought in and won most civil lawsuits, with startups repealing securities laws when they raised money by selling cryptocurrencies.
However, none of these companies were as large as Ripple and XRP. Ripple rated $ 10 billion in its most recent funding round in 2019, and XRP is the third largest cryptocurrency by market value.
A representative for the SEC was not immediately available for comment.
Ripple said it was informed by the commission on Monday that regulators plan to sue the company, chief executive Brad Garlinghouse and co-founder Chris Larsen in federal civil court soon. The company and officials say they plan to fight the claims.
“They are wrong in terms of law and fact,” Mr. Garlinghouse said.
The lawsuit revolves around whether XRP, a digital asset that the company launched in 2012, is actually a security that should have been registered with the SEC. Registration involves providing disclosures to the SEC and the public about the company’s business model, risk and financial condition. The SEC reviews the disclosures and provides feedback for investors to improve them.
It is not known what the SEC is seeking through its litigation, although it has received financial penalties in similar cases and is a requirement for digital-asset sponsors to provide ongoing disclosures to investors – exactly as Such as periodic disclosures that public companies provide.
XRP is similar to bitcoin and other cryptocurrencies, but also differs from the major methods that provoke SEC investigations. Bitcoin was an open software project that was launched by a pseudonym producer himself as Satoshi Nakamoto.
The XRP, initially called Ripple, was built, initially sold and supported by the Ripple Company.
Ripple has significantly changed its relationship with XRP, controlling its development over an open-source network of independent developers. But the company still holds about 6.4 billion XRP directly and an additional 48 billion in escrow, allowing it to periodically sell them to the public.
It has distributed 45 billion XRP since inception. This is different from the ways in which bitcoins are manufactured and distributed.
The SEC has stated that neither bitcoin nor ether, another well known cryptocurrency, are securities. But the agency has been granted the perimeter to pass other digital assets to federal oversight.
Mr Garlinghouse, who has criticized what he says is a lack of regulatory clarity for many digital assets, questioned why the Commission and in particular the agency’s chairman Jay Clayton chose now to take a stand on XRP.
“That means nothing to me,” he said. “This is a kind of foreshadowing.”
Mr. Clayton has stated that he is leaving the SEC by the end of the year. He has mostly suspected cryptocurrencies, saying that many fall within the legal definition of security.
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