Digital currency XRP plunged on Wednesday as the feds sued Ripple, the tech firm that created it.
XRP’s price sank more than 30 percent to 34 cents as of 10 a.m. after the Securities and Exchange Commission accused Ripple of illegally raising more than $1.3 billion by selling the digital coin.
The SEC also brought charges against Ripple CEO Brad Garlinghouse and co-founder Christian Larsen late Tuesday — a day after Garlinghouse publicly accusedoutgoing SEC chairman Jay Clayton of “picking winners” in the cryptocurrency market on his way out the door.
“The SEC … should not be able to cherry-pick what innovation looks like (especially when their decision directly benefits China),” Garlinghouse said on Twitter late Monday. “Make no mistake, we are ready to fight and win – this battle is just beginning.”
The SEC’s says Garlinghouse and Larsen personally sold about $600 million worth of XRP while the company skirted disclosure rules meant to protect investors.
“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,” Marc P. Berger, deputy director of the SEC’s enforcement division, said in a statement.
Garlinghouse stood by his pledge to fight the case tooth and nail and blasted the charges as “illogical.”
“We are not only on the right side of the law, but we will be on the right side of history,” he said in a statement.
At the heart of the case is whether XRP — the world’s third-largest cryptocurrency — is a security, like a stock, that has to be registered with the SEC under federal law.
The SEC views XRP as a type of security called an investment contract. Regulators say the coin’s performance depends on Ripple’s actions as a company, given that it created the trading markets for XRP and took steps to manage its price and liquidity, according to the Tuesday complaint.
Lawyers warned Ripple as early as 2012 that XRP could be considered a security — but they sold it anyway without filing regulatory paperwork, forcing investors to rely on the company for information about it, the SEC alleged.
But Ripple countered that XRP is in fact a currency like popular rivals Bitcoin and Ether, which the SEC has previously said are not securities.
In a note to employees published Tuesday, CEO Garlinghouse said XRP’s price is correlated with movements in other virtual currencies rather than Ripple’s activities. He noted that people who buy XRP don’t get a chunk of Ripple’s profits or any voting rights.
“To be clear, this is all based on [the SEC’s] illogical claim that XRP is, in their view, somehow the functional equivalent of a share of stock,” Garlinghouse said. “What’s more, for them to say that XRP has been a security all along and that Ripple, [Larsen] and I should have known makes absolutely no sense… particularly when the US Treasury and US Department of Justice have long ago concluded that XRP is a currency.”
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