Blockchain for Banking News

SEC sues Ripple over XRP offering

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The SEC has filed charges in New York against Ripple Labs and its current and former CEOs. Yesterday CEO Brad Garlinghouse announced on Twitter that he was expecting the move. We’ve uploaded the full SEC legal filing and earlier this month Ripple published arguments why the don’t believe XRP is a security.

Allegations include that since 2013 they raised more than $1.3 billion through an unregistered digital asset securities offering and that the activity is ongoing. Gains of $600 million are allegedly attributed to the CEOs personally.

“Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution and a secondary trading market, must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies,” said Stephanie Avakian, Director of the SEC’s Enforcement Division. 

She continued, “We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”

Last week we noted that the SEC must be increasing pressure on Ripple given the hiring of Sandie O’Connor, JP Morgan’s former head of regulatory affairs and various other moves by Ripple. 

The SEC considers the Bitcoin and Ethereum blockchains are sufficiently decentralized and hence not securities. However, whether or not Ethereum was sufficiently decentralized at the time of the token issuance has been overlooked to date. And while the SEC has every right to take action against Ripple, Ethereum’s free pass lends credence to Garlinghouse’s argument of picking winners.

Widely respected Ethereum founder Vitalik Buterin took to Twitter yesterday and was uncharacteristically undiplomatic about Ripple and XRP. On its face, Buterin was responding to Ripple’s repeated claims that Bitcoin and Ethereum are Chinese controlled because the majority of cryptocurrency mining is conducted in China. However, the Ripple litigation may again throw a spotlight on Ethereum’s founders, if not the Foundation itself.

As previously noted, Ripple has been considered comparatively more centralized than other distributed ledger networks because it previously controlled the list which defines the nodes that qualify as validators.

Yesterday Ripple’s token price fell more than 25%. Another token that suffered declines of more than 13% was Stellar, founded by Ripple’s former CTO, Jed McCaleb. Last year Korean researchers claimed that Stellar was more centralized than people realize.