Yesterday Ripple announced its “current” partnership with Moneygram was ending by mutual agreement. A couple of weeks ago, the money transfer company said it stopped using Ripple’s On Demand Liquidity (ODL) solution for the four currencies where it was active. This follows the SEC’s December lawsuit against Ripple alleging XRP is a security.
ODL uses XRP for transfers enabling foreign currency transactions and cross-border payments. The underlying messaging solution RippleNet, that several banks use does not use XRP.
Last week Moneygram itself was the subject of a class-action lawsuit relating to its use of XRP. Ripple and Moneygram did a deal in 2019 in which Ripple agreed to make $50 million of XRP available to Moneygram in exchange for an equity interest. The Moneygram lawsuit alleges that the company should have been aware that if XRP was found to be a security it would impact Moneygram’s bottom line because it would lose the market development fees.
“Together, we processed billions of dollars through RippleNet and On-Demand Liquidity (ODL),” said Ripple in a statement. “We are both committed to revisiting our relationship in the future. We still believe in the promise of digital assets and blockchain technology to change the status quo in global payments for the benefit of billions of consumers around the world.”
Ripple’s shareholder battle
Meanwhile, apart from the SEC litigation, Ripple is also battling with Tetragon, the lead investor in Ripple’s $200 million Series A, which is asking for its money back. On Friday, Ripple announced a victory that denied Tetragon a preliminary injunction.
A clause in the investment agreement gives the option to Tetragon to clawback the investment if XRP is deemed a security going forward. Tetragon is concerned that Ripple could use free cash to buy XRP and wants to make sure the free cash is available to pay them back. Ripple’s position is that – based on the contract’s wording – XRP is not a security.
The ruling hinged on the contract wording, which required it to be ‘determined’ that XRP is a security (full wording below). Judge Morgan Zurn ruled that the current SEC enforcement action lacks the finality implied by the word ‘determined’. That’s because it has left the decision up to the courts and the judge considered that as asking rather than answering the question of whether XRP is a security.
Because the action failed on this point, the need to protect cash balances falls away.
While others such as Block.One, have made SEC settlements that amounted to a slap on the wrist, Ripple can’t really afford to settle. For starters, it would lose its Series C investment based on the wording. And it would also be ammunition for the class action lawsuits it faces.
The clause in the investment agreement:
“A ‘Securities Default’ means if XRP is determined on an official basis (including without limitation by settlement) by the U.S. Securities and Exchange Commission (or (1) another governmental authority or (2) a governmental agency of similar stature and standing) to constitute a security on a current and going forward basis (and not, for the avoidance of doubt, a determination that XRP was a security in the past).”