The civil suit is in relation to whether or not XRP is considered a security, and therefore is (or was) subject to security regulations.
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CEO Brad Garlinghouse told Fortune that the lawsuit also names himself and Chairman Chris Larsen, as defendants. During the 2017 bull run Chris Larsen was the 5th richest person in the world.
Ripple General Counsel Stuart Alderoty responded to the SEC’s Wells Notice saying, “The SEC’s theory, that XRP is an investment contract, is wrong on the facts, the law and the equities.”
A Well’s Notice is a notification of possible SEC enforcement. 80% of Well’s Notices lead to charges for securities violations.
The SEC has sued several cryptocurrency developers, usually in relation to ICOs which sold unregistered securities to US investors.
Some developers with networks that are already operating beyond the ICO stage have settled with the SEC and their cryptocurrency networks continue to operate to this day. A notable example is EOS, which paid the SEC a $24 million fine for conducting a $4 billion ICO.
Ripple did not have an ICO for XRP so it’s likely they are being sued for something else. The exact reason for the lawsuit is still unclear, but it’s unlikely that it will cause the XRP network to halt operations. Ripple Inc. does not have the ability to shut down the XRP network.
Garlinghouse blasted SEC chairman Jay Clayton for suing Ripple right as he is leaving office: “Clayton did this with one foot out the door. Rather shamefully, he has decided to sue Ripple, and leave the legal work to the next Chairman.”
He also said that it was ‘confounding’ that the SEC would choose to sue now when other countries like Singapore, Switzerland, and Japan have declined to treat XRP as a security. Larsen and other executives have suggested they may move the company outside of the US because of overbearing regulators.
Garlinghouse said the Trump administration has been hostile towards crypto with the recently proposed Treasury rules and this SEC enforcement action, and suggested that a Biden administration may be less hostile.
Biden’s Treasury Secretary nominee Janet Yellen said this in 2018 about Bitcoin: “I will just say outright I am not a fan… very few transactions are actually handled by bitcoin, and many of those [that] do take place on bitcoin are illegal, illicit transactions.”
Garlinghouse also said that the bulk of Bitcoin and Ethereum is created in China, while Ripple is an American company. Over 50% of Bitcoin mining is located in China, where electricity is exceptionally cheap.
“I think we have to stand up for all of crypto — and not let the SEC bully the entire industry,” said Garlinghouse,“We’re going to be on the right side of history.”
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