Will the SEC take action against ICOs

Ripple: The SEC lawsuit against the crypto asset XRP is about $ 1.3 billion

CEO Brad Garlinghouse has predicted that one day before Christmas the most vicious "gift" for the crypto industry in the USA is there: The US Securities and Exchange Commission has a big fat lawsuit against the company Ripple from San Francisco submitted. The firm and two founders, Garlinghouse and Chris Larsen, are accused of grossing a whopping $ 1.3 billion in an unregistered digital asset offering over the years.

Because Ripple is the company that launched the XRP token, which has lost a fifth of its value in the past 24 hours due to the SEC lawsuit. But behind Bitcoin and Ethereum (and partly behind Tether), XRP is the most important crypto ace on the market, with a market capitalization of around 16 billion dollars.

As of 2013, Garlinghouse and Larsen are said to have raised $ 1.3 billion with their company Ripple through the unregistered sale of XRP. And not only that: They are said to have also sold XRP in exchange for contributions in kind (e.g. market making services), and Garlinghouse and Larsen themselves are also said to have made privately unregistered XRP sales with a total value of around 600 million US dollars. The powerful US agency SEC is now accusing them of violating the registration requirements of the federal securities laws.

Are XRP stocks actually Ripple?

"We are accusing Ripple, Larsen and Garlinghouse for failing to register their ongoing offer and sale of billions in XRP to retail investors, thereby providing potential buyers with adequate disclosure about XRP and Ripple's business, as well as other important, long-standing." Existing protections that are fundamental to our robust public market system have been withheld, ”said Stephanie Avakian, director of the SEC's Enforcement Division. The executives at Ripple have failed to meet core investor protection provisions since 2013. ”The SEC lawsuit could result in an injunction, compensation with prepayment interest and civil penalties.

As previously reported, Ripple, who sees itself as a victim of the outgoing Trump administration, will take action against the lawsuit. In a detailed blog entry, Garlinghouse of course denies that the XRP tokens are securities that represent shares in the Ripple company. “XRP holders do not participate in Ripple's profits, nor do they receive dividends, nor do they have voting rights or any other corporate rights. Buyers receive nothing from their purchase of XRP other than the asset. In fact, the vast majority of XRP owners have no affiliation or relationship with Ripple, ”he writes. "If you want to invest in Ripple, you don't buy XRP, you buy shares in Ripple." It is just illogical "that XRP could be a functional equivalent of a share in Ripple.

In 2015 the question - share or asset - came up once before. At that time, the US Department of Justice stated that XRP was not a security, but a virtual currency (more on this here). Ripple is now also referring to this, who see the question as answered long ago.

"Attack on the crypto industry"

For his part, Garlinghouse sees himself as a victim of outgoing SEC chairman Jay Clayton, who is likely to be replaced by Joe Biden's new administration at the end of Donald Trump's term in office. “This is an attack on crypto in general. In this case, XRP is a proxy for every other altcoin, ”said Garlinghouse. While the SEC does not classify the crypto assets Bitcoin and Ethereum, which are dominated by Chinese miners, as securities, an example would now be set at XRP that would damage the entire US crypto industry, including Coinbase.

"This sets a terrible industry-wide precedent for any company working with a digital asset," said the Ripple CEO. “We will fight aggressively. Not only are we on the right side of the law, we will be on the right side of history. ”He continued:“ It is very interesting, but not surprising, that the 'Lame Duck' Trump administration is making momentous decisions that the Biden administration will hold up. "

Ripple has long portrayed itself as the creator of XRP, but keeps saying that you have no influence and no control over the pricing of XRP. The token would be traded on hundreds of stock exchanges and exchanges, and there are hundreds of financial institutions on the Ripple-Net, where XRP is used to pay for cross-border transactions.

Also essential: unlike Bitcoin and Ethereum, XRP are not created by mining. 100 billion tokens were created at launch. 6.4 billion of these belong to Ripple, 48 billion are still in a reserve for later sale. About 44.7 billion are currently in traffic (e.g. also on exchanges), they are currently worth a total of about 16 billion dollars.

Telegram and Kik already punished

Ripple isn't the first company to be targeted by the SEC for crypto assets. Founder Ted Livingston's company Kik with the messaging app of the same name has got into an expensive legal dispute with the US Securities and Exchange Commission. The US authorities accused Kik of selling an unregistered ICO KIN token worth around $ 100 million, but that the sale was not registered. After an intense and expensive legal battle, Livingston Kik eventually had to sell.

Kik: Messaging app is sold to Whisper maker MediaLab

The messaging app Telegram also failed in terms of crypto assets at the SEC. In a private token sale, GRAM tokens worth around $ 1.7 billion were sold to investors. But the US authorities said that these tokens were actually securities and would represent company shares - and such a sale should have been reported. After about two and a half years of development, Telegram had to discontinue its blockchain project, the Telegram Open Network (TON for short), and reverse the sale of the tokens.

Telegram completely discontinues the blockchain project and the GRAM token

After all, block.one, the company behind EOS, has already paid a fine for a similar matter. You had to shell out $ 24 million because the token sale between June 2017 and June 2018, at which Block.one sold around 900 million EOS tokens online to investors and at the time received the equivalent of around four billion dollars, was not a sale of securities ("Securities") had been reported.

EOS: $ 24 million fine for blockchain company Block.one