Ripple (XRP) and its company executives face charges filed by the United States Securities and Exchange Commission, which could lead to the delisting of XRP on some cryptocurrency exchanges
The Securities and Exchange Commission (SEC) announced that it had filed a lawsuit against Ripple and two of its executives, Christian Larsen, the company’s co-founder, executive chairman of its board, and former CEO; and Bradley Garlinghouse, the company’s current CEO. SEC accuses the company of raising more than $1.3 billion via an unregistered and continuous digital asset securities offering.
According to the lawsuit, Ripple raised the said amount over a seven-year period from retail investors via the sale of XRP on an ongoing basis. The company allegedly gave away billions of XRP in exchange for non-cash consideration, like labour and market-making services.
Ripple considers XRP as a currency which means that it is outside the purview of the SEC. The SEC considers Bitcoin and Ethereum as currencies. Kik Interactive was subjected to a similar case for the ICO of its cryptocurrency KIN and had to pay a $5 million penalty after losing the case. The judge ruled that the sale of KIN had violated US security laws. The latest case against XRP will determine the future of ICO’s as it is one of the largest and most popular cryptocurrencies.
Larsen and Garlinghouse are accused of selling personal and unregistered XRP totalling approximately $600 million. SEC argues that the defendants didn’t register the offer and sales of their XRP, and the sale did not satisfy any exemptions from registration. Their actions are therefore in violation of the registration provisions of the federal securities laws.
The San Francisco-based fintech firm has always maintained that XRP is an independent cryptocurrency and is separate from the company. However, XRP was often referred to as “Ripple” for most of its existence, and the two shared a logo until 2018.
Marc P. Berger, Deputy Director of the SEC’s Enforcement Division, stated that the registration requirements are designed to ensure retail and institutional investors receive essential information about an issuer’s business operations and financial condition. Thus, Ripple’s failure to satisfy these requirements meant investors lacked information to which they were entitled.
XRP could face delisting from exchanges
XRP could face the risk of potential delisting action from several cryptocurrency exchanges due to its regulatory challenges. The increased regulatory attention on cryptocurrency exchanges saw several exchanges restructure their operations.
Last year, the US-based cryptocurrency exchange Poloniex announced it was delisting nine trading pairs due to regulatory uncertainties in the country. Bittrex followed suit by blocking US customers from accessing 21 different assets.
Binance went a step further to shut down the US-based users’ access to its central platform and launched a new one solely for the US market. These exchanges and others delisted the cryptocurrencies based on the SEC classifying them as securities.
This latest development could see the SEC classifying XRP as an unregistered security. An adverse ruling may result in delisting of XRP as exchanges are wary of listing digital assets that run afoul of relevant laws and regulations.