The SEC says that Ripple's XRP is an unregistered security. XRP has declined 50% this week and is down 90% from its all-time highs. We covered the initial headline yesterday. In today's edition, we provide additional quotes from the SEC that are based on privileged, governmental information requests and subpoenas that were not available to any member of the general public prior to the SEC's disclosure. This lawsuit details what investors could only have imagined months ago.
What the SEC found:
- Writer's note: Below, the language of the SEC is unmodified, which speaks for itself.
- "From at least 2013 through the present, Defendants sold over 14.6 billion units of a digital asset security called 'XRP,' in return for cash or other consideration worth over $1.38B USD, to fund Ripple's operations and enrich Larsen and Garlinghouse. Defendants undertook this distribution without registering their offers and sales of XRP with the SEC as required by the federal securities laws."
- "Ripple created an information vacuum such that Ripple and the two insiders with the most control over it — Larsen and Garlinghouse — could sell XRP into a market that possessed only the information Defendants chose to share about Ripple and XRP."
- "Defendants continue to hold substantial amounts of XRP and — with no registration statement in effect — can continue to monetize their XRP while using the information asymmetry they created in the market for their own gain, creating substantial risk to investors."
- "Ripple engaged in this illegal securities offering from 2013 to the present, even though Ripple received legal advice as early as 2012 that under certain circumstances XRP could be considered an 'investment contract' and therefore a security under the federal securities laws. Ripple and Larsen ignored this advice."
- Chris Larsen and Brad Garlinghouse "personally profited by approximately $600M from their unregistered sales of XRP."
- "Around May 2013, Ripple explained that its 'business model is based on the success of its native currency,' that it would 'keep between 25% to 30%' of XRP, and noted the 'record highs' of prices other digital assets had achieved as something Ripple hoped to emulate for XRP."
- "Ripple made it part of its 'strategy' to sell XRP to as many speculative investors as possible. While Ripple touted the potential future use of XRP by certain specialized institutions, a potential use it would deploy investor funds to try to create, Ripple sold XRP widely into the market, specifically to individuals who had no 'use' for XRP as Ripple has described such potential 'uses' and for the most part when no such uses even existed."
- The full court filing can be read here.
Ripple's response:
- Brad Garlinghouse claims that the SEC offered him a settlement that he declined. He omitted the amount of the proposed settlement.
- Garlinghouse also has posted a statement claiming, among other things, that the U.S. Treasury and Department of Justice "have long ago concluded that XRP is a currency," which will certainly be a point of contention in the upcoming months of litigation.