Ripple Labs Inc. and its top executives were accused by the U.S. Securities and Exchange Commission of misleading investors in XRP, the world’s third-largest cryptocurrency, by selling more than $1 billion of the virtual tokens without registering with the agency.
Ripple co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse “created an information vacuum” that allowed them to sell XRP into a market that only had information they chose to share, the SECsaid in a lawsuit filed Tuesday in New York. The two men ignored legal advice that the cryptocurrency could be considered an investment contract and therefore was a security, the agency said.
“From a financial perspective, the strategy worked,” raising at least $1.38 billion “over a years-long unregistered offering of securities,” the SEC said. “Ripple used this money to fund its operations without disclosing how it was doing so, or the full extent of its payments to others to assist in its efforts to develop a ‘use’ for XRP and maintain XRP secondary trading markets.”
XRP declined as much as 16% to 44 cents on Tuesday. The digital token has still more than doubled this year with a market value of about $21 billion. Only Bitcoin and Ether are bigger cryptocurrencies.
The SEC says Larsen and Garlinghouse personally profited by about $600 million. Garlinghouse is accused of touting that he was “very long” on the cryptocurrency while not disclosing his sales.
This is quite bad for Ripple. Not exactly worst case, that’d be securities fraud, but close.
XRP is basically useless if deemed a security. Alleging violations through present day is a kill shot. Charging individual executives is remarkable.
This is the SEC playing hardball.9:52 PM · Dec 22, 2020
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