Brad Garlinghouse reported that the United States Securities and Exchange Commission (SEC) had plans to sue his company, and this Tuesday afternoon the agency made public its lawsuit against Ripple, for the unauthorized sale of tokens.
What we inspect with the "El Bailador" road simulator: interview with Fortune, Brad GarlinghouseCEO Ripple, the American financial services and payments company with cryptocurrencies, for institutions, warned that the company could face a lawsuit from the United States Securities and Exchange Commission (SEC), which argues that Ripple carried out a sale of securities in the form of Tokens without authorization from regulators during their XRP pre-sale campaign. Well, this Tuesday afternoon, the SEC made public its demand against two Ripple executives, claiming they conducted a $1,3 billion unregistered securities offering.
Ripple is the company responsible for the issuance of the cryptocurrency XRP (Ripple), which the SEC considers as an asset, and which therefore must comply with the regulations in force in the country for its legal trade and negotiation. Likewise, the regulator points out that, at the time of the pre-sale of the company's tokens, XRP was not registered with the entity, so, by trading with it, Ripple violated US regulations on investor protection. The SEC also accuses Ripple of offering a misleading offer to its investors, who allege that they purchased the cryptocurrency at a security with the intention of obtaining a stake within the company.
During the interview, Garlinghouse revealed that both he and Chris Larsen, co-founder of Ripple, will be the main defendants by the organization. Indeed, the agency's lawsuit is imposed against Ripple Labs Inc. and two of its executives, Christian Larsen and Bradley Garlinghouse. Given the fact, Garlinghouse indicated that he will fight with the regulator for as long as the dispute lasts in court.
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The problems of centralization in a decentralized ecosystem
The ideal with which Bitcoin was born is to put an end to the problems of abuse of power and financial control over society in general; a problem that is reflected in this case. XRP, Ripple's cryptocurrency, has been the subject of strong criticism since its inception, for being a highly centralized asset by the company that issues it. In fact, Ripple executives control about 60% of the cryptocurrency's supply, something not seen in other digital assets such as Bitcoin (BTC) y Ethereum (ETH).
Likewise, in addition to being a centralized cryptocurrency, it is also objectionable, so unlike BTC and ETH, XRP can be subject to direct regulation by the SEC or another regulatory body in the world.
Since its inception, XRP has been criticized by the crypto community for being a cryptocurrency with the same mistakes as fiat money: centralized, manipulable and objectionable.
Is XRP a security or not?
Now, to support its lawsuit, the SEC is considering XRP as a security, and alleging that several early American investors in the cryptocurrency bought the cryptocurrency to gain a stake in the industry. While Garlinghouse, on many occasions, has repeated that XRP is not a security, and that its possession does not guarantee any participation within Ripple for investors. Likewise, the executive recalled that XRP is a cryptocurrency based on blockchain, so, even if the company closes, the payment system is able to continue functioning without problems.
Garlinghouse criticized the SEC's intentions during the interview, pointing out that this body has allowed Ripple and XRP to function as an efficient payment system in the country for the last 8 years; and expressed in a release that the SEC's assessment of that with this action the SEC will destroy innovation and the development of the digital industry in the United States.
“No other country has classified XRP as a security. The SEC has allowed XRP to operate as a currency for over eight years, and we questioned the motivation behind this action just days before the change in administration. Instead of providing a clear regulatory framework for the crypto industry in the United States, (SEC Chairman) Jay Clayton inexplicably decided to sue Ripple, leaving the legal work to the next administration.”
The demand is already here
In his statements, Garlinghouse noted that the SEC lawsuit would come in the near future, although he specified that he was not aware of an exact date. Now, just 1 day after its statements, the SEC makes its complaint public, and accuses the company of raising million-dollar funds since 2013 through the sale of digital assets in an unregistered securities offering to American investors and throughout the world.
According to the SEC, Ripple distributed billions of XRP in exchange for non-monetary consideration, such as labor and market-making services, and also used its XRP cryptocurrency to make profits to fund the company's business. In the case of Larsen and Garlinghouse, the regulatory body accuses the two directors of making unregistered personal sales with the cryptocurrency for more than $600 million.
“We allege that Ripple, Larsen and Garlinghouse failed to register their ongoing offering and sale of billions of XRP to retail investors, depriving potential buyers of adequate disclosures about the XRP and Ripple business and other important long-standing protections.” data that are fundamental to our robust public market system.
The director of the SEC Enforcement Division, Stephanie Avakian, and the deputy director of the SEC's Enforcement Division, Marc P. Berger, claim that neither the company nor the directors complied with current regulations and provisions for investor protection for several years, so Ripple investors lacked essential information about the business, to which they were entitled. The SEC's lawsuit seeks to impose injunctive relief, in addition to investment disgorgement with prejudgment interest and other civil penalties.
Debate in the crypto community over Ripple claims
One of the first to react to the statements that Garlinghouse had made was Vitalik Buterin, co-founder of Ethereum, who stated that XRP is not a currency like BTC or ETH, as Garlinghouse says, but rather it is a shitcoin. Buterin also mocked the statements of Ripple executives, who pointed out that BTC and ETH are currencies under the control of China, and that the SEC similarly declared that they are not securities.
For his part, the executive director of Coin Center, Jerry Brito, stated that it will not oppose the SEC's declaration of XRP as a security. The manager pointed out that there is no statement that indicates that XRP is not a security, so he stated that “There is nothing to discuss about it,” in relation to the agency's lawsuit against this company.
ShipChain receives a million-dollar fine from the SEC
As the SEC reveals its intentions to sue Ripple, the regulator also imposed a $2 million fine on ShipChain, a logistics and transportation company that uses blockchain to guarantee transparency, security, visibility and trust to the global supply chain, and that issued and sold more than 145 million digital assets called SHIP in an initial coin offering (ICO) at the end of 2017 until the beginning of 2018.
The SEC issued a fine against the company stating that it violated Sections 5 (a) and 5 (c) of the Securities Act, and offered and sold the tokens as securities without having a registration statement with the agency, and without being or qualified to do so. According to the SEC, the company's sales raised about $27,6 million by the time of the initial offering, for which the regulator calculated a fine of $2,05 million, in addition to the return of all SHIP tokens.
At press time, due to the regulator's demand. The current value of the cryptocurrency is $71,6 USD.
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