25.10.2021

US Securities and Exchange Commission sues Ripple

The day before, Ripple CEO Brad Garlinghouse said in an interview with Fortune Magazine that the US Securities and Exchange Commission (SEC) is preparing to file a lawsuit against the company for issuing unlicensed securities, which, according to the regulator, are XRP tokens.

Garlinghouse noted that he and Ripple co-founder Chris Larsen will serve as defendants in the lawsuit. His prediction has become a reality today – the SEC still enters into legal proceedings with the company. The reason for this was “an unregistered offering of securities worth $ 1.3 billion.”

As a reminder, Ripple issues XRP cryptocurrency and is responsible for its marketing along with other details. Naturally, due to the connection, the reaction to the news was not long in coming: the coin’s capitalization began to decline sharply against the backdrop of a serious fall in price.

In particular, over the past day, the rate fell by at least 20 percent. In addition, XRP dropped to 4th place in the cryptocurrency rating by capitalization, losing its pedestal to the stablecoin Tether.

Now the top of the overall cryptocurrency rankings looks like this. Please note that most coins show growth over the last day and week. For example, Litecoin LTC rose 35 percent in seven days. At the same time, XRP is down 20 percent.

Why XRP is falling

Earlier Garlinghouse commented on the situation to the Wall Street Journal. According to him, representatives of the SEC warned the management of Ripple about the lawsuit on Monday. On this occasion, the CEO of the company has prepared a specific statement. Here is the text of the latter, quoted by Decrypt.

The SEC is fundamentally wrong in terms of law and fact. XRP is a currency and does not need to be registered as an investment contract. In fact, the Justice Department and Treasury FinCEN have already determined that XRP is a virtual currency in 2015, and other G20 regulators have done the same. No other country has classified XRP as a security.

That is, the problem here lies precisely in relation to XRP. According to regulators, XRP acts as securities, the sale of which, in addition, began without prior registration. And since the coins were used, among other things, for their own enrichment by the project management, this caused concern among the representatives of the department.

Here is another statement made on behalf of Ripple.

The Securities and Exchange Commission has allowed XRP to function as a currency for more than eight years, and we doubt the motivation for making this decision just days before the change of administration. Rather than provide a clear regulatory framework for cryptocurrencies in the US, SEC Chairman Jay Clayton inexplicably decided to sue Ripple, leaving the actual legal job to the next administration.

As a reminder, the controversy over whether XRP is a security in nature has not subsided in the cryptocurrency community for several years now. Here’s what Michael Arrington, founder of Arrington XRP Capital, recently said about this.

This is an attack on the entire cryptocurrency industry. While other countries embrace the future, the SEC continues to sow fear.

On the other hand, many crypto enthusiasts see Ripple’s actions as a lack of logic. For example, Ethereum creator Vitalik Buterin posted the following message on his Twitter account:

It looks like the Ripple / XRP team is dropping to a new level of weirdness. They argue that their Shitcoin should not be called a security for “government policy reasons,” namely that Bitcoin and Ethereum are allegedly “controlled by China.”

Indeed, in their defense, the Ripple team tried to use the patriotic context to their advantage. Representatives called Bitcoin and Ethereum cryptocurrencies that are “controlled by China.” And since Ripple and XRP represent the United States, a lawsuit against them will transfer the leadership in the cryptocurrency niche to China.

That is, representatives of Ripple tried to denigrate the main projects of the cryptocurrency industry with unjustified statements for their own benefit. Representatives of the cryptocurrency community did not appreciate this, but Vitalik called XRP “shitcoin” at all.

One way or another, XRP price is falling rapidly right now. This news shows how strongly the cryptocurrency market still depends on the opinion of financial regulators. In fact, the litigation hasn’t even begun yet, but just one statement from the SEC was enough to spread panic among XRP investors. Still, it is obvious to investors that the case may well end in large fines, so they strive to get rid of the asset in advance.

In the case against Ripple, there were a lot of interesting details that XRP investors may not like. Here’s a line from Nathaniel Popper, a reporter for The New York Times.

The main financial company that used XRP and mediated the remittances told Ripple that their token is much more expensive than the alternatives. However, in the end, she agreed to use it only because Ripple was paying la her for that.

It turns out that the loud statements about the convenience of XRP, which are used by large companies, were, among other things, due to Ripple’s payment for cooperation. However, it is important to remember here that positive news about the development of the project – albeit not entirely honest – affected the rate of the cryptocurrency, the huge reserves of which are at the disposal of the company’s management.

Ripple CTO David Schwartz is mentioned in the SEC case. Based on the contents of the lawsuit, Ripple’s “publicly announced strategy” was to “do everything in our power to maximize the dollar price of XRP – at least as long as it takes us to sell the XRP we have.”

That is, the project representatives really wanted to make money by selling XRP.

And there were many such deals. Here is a graph of XRP sales by Ripple’s representatives from The Block. You can see that at times the amount of sales exceeded the $ 250 million mark.

Interim results for Ripple are disappointing. The lawsuit of the US Securities and Exchange Commission seriously undermined the credibility and reputation of the company, which managed to sell XRP for $ 1.3 billion. Judging by the contents of the case, the actions of the team representatives were sometimes not entirely honest, besides, the management used the growth of the token rate for their own enrichment.

As we already know from the experience of the Telegram team, SEC employees know how to put sticks in the wheels of cryptocurrency projects. Therefore, it cannot be ruled out that the case here will not end with Ripple’s defeat or at least serious fines. At the same time, representatives of the company promise to fight to the end.

 

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