SEC Comes Down on XRP

Ripple CEO Brad Garlinghouse responded to the latest regulatory complaint against XRP, reassuring shareholders that the company will prove their case in the court. Garlinghouse asserted that the legal action against XRP brought by the SEC is an “assault on crypto at large.”

On Tuesday, the SEC indicted fintech company Ripple [XRP] and two of its executives for creating an unregistered security, claiming that they raised over $1.3 billion by selling the crypto, XRP, without going through the appropriate processes and disclosures.

XRP is the third most-valuable cryptocurrency on the market, and debatably the most “useful” in the real economy. Ripple enables its customers to use XRP to make cross-border money transfers that take less time than traditional money transfers. Ripple has also invested in MoneyGram [$MGI], who works with XRP.

The lawsuit appears to make investors apprehensive, however. XRP, which is worth more than $20 billion, is down 12% since the SEC’s grievance was filed in the U.S. District Court in Manhattan. The case will be a critical test for cryptocurrencies. Beyond Bitcoin, thousands of new digital assets have been created since its infancy stages back in 2017, taking advantage of a legal gray area. The SEC Finally Cracks Robinhood

Garlinghouse went on to say that the SEC is “engaged in an all-out attack on the crypto industry,” despite the regulator claiming that it is committed to fostering innovation in the digital asset space.

Under the “Howey test”, based on a 1946 Supreme Court case, an investment is a security “when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” per the SEC. Surprise, Surprise: Coinbase Files IPO

In its lawsuit, the SEC purports that Ripple raised money through the digital coin offering to develop its business; “Ripple used this money to fund its operations without disclosing how it was doing so, or the full extent of its payments to others to assist in its efforts to develop a ‘use’ for XRP and maintain XRP secondary trading markets.”

In an interview on Tuesday shortly after the suit was filed, Ripple General Counsel Stuart Alderoty revealed that this claim was false. “That’s one of the many statements in this complaint that we will refute in court,” he said. People who buy XRP “receive nothing from Ripple in connection with their purchase,” Alderoty said.

Ripple, he noted, is a company that does more than just use XRP. In anticipation of the SEC’s complaint, Mr. Garlinghouse earlier released comments critical of the agency. “The SEC is fundamentally wrong as a matter of law and fact,” he said in a statement. “XRP is a currency, and does not have to be registered as an investment contract.”

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The CEO emphasized that XRP is not an “investment contract” as holders have no connection with Ripple. Garlinghouse also stressed that the market value of XRP is not correlated with Ripple’s activities, unlike securities. “We are not only on the right side of the law, but we will be on the right side of history,” Garlinghouse stated.

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