In this image of the cryptocurrency ripple image ‘altcoin’ scheduled for photo on April 25, 2018 in London, England.
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Ripple, the most well-known fintech company for cryptocurrency XRP, has said it intends to be sued by the Securities and Exchange Commission over allegations that it violated investor protection laws.
The SEC is expected to take legal action against Ripple, CEO Brad Garlinghouse and co-founder Chris Larsen. He alleges that the company violated laws against the sale of unlisted securities when they sold XRP to investors.
Garlinghouse said he expects the trial to be filed before Christmas. In a statement late Monday, he said the SEC’s suit was “fundamentally wrong as a matter of law and fact” and questioned his time.
“XRP is money, and it doesn’t have to be registered as an investment contract,” Garlinghouse said. “In fact, the Department of Justice and FinCEN of the Treasury decided that XRP is a virtual currency in 2015 and other G20 regulators have done the same. No other country has classified XRP as security. “
“The SEC has allowed XRP to operate as a frontier currency for more than eight years, and we question the incentive to take this action just days before the change in administration. providing a clear regulatory framework for crypto in the U.S., (SEC Chairman) Jay Clayton inappropriately decided to sue Ripple – leaving the real legal work to the next Administration. “
Clayton said last month that he would step down as SEC chairman at the end of the year, before his term ends in June.
The SEC was not immediately available for comment.
Why is a lawsuit important?
With a market potential of over $ 20 billion, XRP is one of the most valuable cryptocurrencies in the world. It was created and distributed by the founders of Ripple in 2012, and is designed to enable fast cross-border payment.
According to Ripple, the SEC intends to argue that XRP is a security and that Ripple violated U.S. laws by not registering the token with the SEC prior to listing.
The group has won another high-profile civil suit against startup Block.one and Kik, which they say violated security laws by raising money through a controversial fundraising method with the startup. an initial offer of coins is called.
Ripple argues that XRP – like bitcoin – should be classified as a frontier currency and does not need to be registered as an investment contract. The latter company was given private value at $ 10 billion and is backed by the likes of Japanese financial services giant SBI Holdings, Spanish bank Santander and major venture capital firms including Andreessen Horowitz, Lightspeed and Peter Thiel Foundation Fund.
The “security” label is important because it could bring XRP under strict new rules, which could have a significant impact on Ripple. Although it claims to be independent of the cryptocurrency, Ripple owns 55 billion of its total 100 billion XRP tokens. The company even generates revenue from the sale of some of their XRP tokens each quarter.
Ripple has threatened to relocate its headquarters outside the US over the issue, with London, Switzerland, Singapore, Japan and the United Arab Emirates slammed as potential locations.
XRP declined sharply after news of the expected SEC suit. The cryptocurrency fell nearly 18% on Tuesday, to trade around 46 cents.
Like many other digital coins, XRP has gained value this year as investors and large companies have warmed to cryptocurrencies such as bitcoin. XRP is still up about 144% year to date.
Bitcoin, which hit a new record high above $ 23,000 last week, fell nearly 5% on Tuesday to around $ 22,748. Ether, the second largest cryptocurrency by market cap, fell more than 5% to $ 607.
The new study over Ripple comes days after the Treasury proposed a new bitcoin disclosure rule aimed at closing currency regulation gaps. The rule would require crypto exchanges to take additional compliance measures when sending money to so-called wallets that are not held on an exchange or by a bank. The Treasury gave the public just 15 days to comment on the plan.
It arrives after another major space company, Coinbase, filed for an original public offering. Coinbase has criticized U.S. proposals for some cryptocurrency transactions, saying they are an “unfortunate departure and disappointment” from previous moves, and has raised an issue with the limited time taken for public response.