xrp crypto news

SEC says third-largest cryptocurrency XRP was sold all wrong

SEC says third-largest cryptocurrency XRP was sold all wrong
Written by publisher team

The US Securities and Exchange Commission has sued Ripple, its former CEO and founder Christian Larsen, and its current CEO, Bradley Garlinghouse. The SEC says it raised more than $1.3 billion through an unregistered securities offering.

The lawsuit alleges that Ripple violated securities laws by selling XRP, which The Wall Street Journal It has been called the “third largest cryptocurrency by market capitalization” over a seven-year period starting in 2013. According to the complaint, the “illegal securities offering” led to an information inconsistency that allowed Larsen and Garlinghouse to sell XRP to investors who knew only what Larsen chose. Garlinghouse will tell them.

At the heart of the case is a fundamental question about XRP: is it a security or a currency? According to the SEC’s lawsuit, this is a security, and therefore Ripple has not provided its investors with the appropriate information they need to assess any potential risks. According to Garlinghouse, it is a virtual currency, which means that the SEC has nothing to do with it. The Securities and Exchange Commission has previously ruled that Bitcoin and Ethereum are currencies. Also, the Department of Justice treated XRP as a currency in 2015, when Ripple filed a lawsuit over its actions.

But XRP differs from Bitcoin and Ethereum in an important way. For these two cryptocurrencies, new coins are generated through the ongoing process of “mining”. Ripple XRP started creating 100 billion units in one go. Ripple owns about 6.4 billion XRP, and Garlinghouse and Larsen own a significant portion of it. Another 48 billion XRP is held in reserve for periodic sales. This difference may be the reason why the Securities and Exchange Commission claims that XRP is a security and not a currency.

The Securities and Exchange Commission (SEC) has won similar lawsuits against Block.one and Kik in the past, saying that these startups’ initial coin offerings were in fact securities. But those cases were different. Kik and Block.one made their own ICO after Guidance from the Securities and Exchange Commission (SEC) in 2017. XRP came into existence years before this guidance.

The lawsuit was not a surprise. Garlinghouse announced yesterday that the company anticipated the lawsuit, and Ripple has already published Wells’ response, a document explaining to the Securities and Exchange Commission that its actions were lawful.

An important part of settling whether XRP is a currency or a security might include something called the Howey test, which was established by a 1946 Supreme Court case. This ruling defined a security as an investment of money in a joint venture with the expectation of profits from the work of others. According to Ripple, XRP does not meet Howey’s test for a number of reasons, but especially because no one has bought XRP with the expectation of Ripple profit.

The Securities and Exchange Commission complaint challenges that. In 2016, Ripple admitted to the New York State Department of Financial Services that buyers were “purchasing XRP for speculative purposes.” He also cites a hedge fund investor who owned XRP who said in 2015 that “the increase in the value of XRP is highly dependent on Ripple’s success.”

About the author

publisher team