Ripple Labs Inc, the company behind the Ripple blockchain payment protocol and the XRP token, is facing a lawsuit by the US Securities and Exchange Commission (SEC) regarding what the regulator said was a US$1.3bn “unregistered, ongoing digital asset securities offering”.
On Tuesday, the SEC alleged that Ripple’s co-founder and executive chairman Christian Larsen and its CEO Bradley Garlinghouse had raised the funds through the sale of XRP tokens in an unregistered offering to investors as well as distributing billions of XRP in exchange for non-cash consideration, such as labour and market-making services.
The SEC added that in addition to structuring and promoting the XRP sales used to finance the company's business, Larsen and Garlinghouse had also effected personal unregistered sales of XRP totalling US$600mln, also alleging that the pair had failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of federal securities laws.
"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", Stephanie Avakian, director of the SEC's Enforcement Division said in a statement.
"The registration requirements are designed to ensure that potential investors – including, importantly, retail investors – receive important information about an issuer's business operations and financial condition. Here, we allege that Ripple and its executives failed over a period of years to satisfy these core investor protection provisions, and as a result investors lacked information to which they were entitled", added Marc P. Berger, deputy director of the Enforcement Division.
XRP’s value dropped 23.3% to US$0.36 in early afternoon trading in London on Wednesday.