SEC sues cryptocurrency platform Ripple over alleged $1.3B fraud as other Exchanges distance themselves

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The US Securities and Exchange Commission on Tuesday filed a lawsuit against the cryptocurrency platform Ripple, its CEO, and its chairman, for an alleged securities fraud worth $1.3 billion.

The market watchdog accused the California-based Ripple of selling unregistered securities to its retail customers since 2013. Through the sale of XRP in an unregistered securities offering, Ripple illegally raised $1.3 billion, according to the complaint.

The failure to register the XRP sales — or qualify for a registration exemption — constitutes a violation of federal securities law, the SEC said.

Ripple was also accused of receiving services, including labor and market-making, in exchange for the XRP offering. Ripple’s chairman, co-founder and former CEO Christian Larsen, and the company’s current CEO Bradley Garlinghouse, also orchestrated personal unregistered sales worth $600 million, SEC said.

XRP, the digital token controlled by Ripple, has been on free fall since SEC filed the lawsuit.

Several minor cryptocurrency exchanges, including OSL, Beaxy and CrossTower, have either suspended or removed XRP from their platforms to avoid legal troubles. Traders and analysts now question the future of XRP, the world’s third largest cryptocurrency by value.

“Given the uncertainty regarding XRP’s status, CrossTower has decided to delist XRP,” CrossTower President, Kristin Boggiano, said in a statement.

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OSL and Beaxy separately tweeted their suspension of XRP trading, “until further notice.”

“Please note: In light of US Securities & Exchange Commission’s enforcement action against Ripple Labs & 2 of its executives, we have suspended all #XRP payment in and trading services on the OSL platform, effective immediately and until further notice”, OSL tweeted.

“The SEC has charged @Ripple with conducting an unregistered security sale. Due to this, #Beaxy has halted trading for XRP pending further news. $XRP withdrawals will remain enabled until further notice,” Beaxy Exchange tweeted.

Bitwise Asset Management said in a statement it has liquidated its XRP position.

“I think it is the beginning of the end,” said Frances Coppola, a financial analyst and commentator who has publicly criticized the company and the XRP token in the past. “Investors are already dumping XRP as quickly as they can.”

A spokesperson for Coinbase, one of the world’s largest exchanges with 40 million users worldwide, said it is currently “considering [its] options” when asked for comment about the lawsuit.

“Any exchange that allows trading in XRP is potentially breaking the law, so exchanges are bound to delist it,” Coppola said, adding the SEC has “a very well put together case,” although couching that “the wheels of the law grind very slowly, so XRP isn’t going to disappear yet.”

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“This potential court case is deadly serious for XRP, possibly even lethal,” financial author and trading veteran Glen Goodman, who has bought and sold XRP “at various times in the past,” said via email.

“The SEC doesn’t muck about—if it wants to make an example of Ripple as a warning shot to similar crypto companies, it will go all out to win this case, and XRP may have to be delisted from most crypto exchanges.”

MoneyGram, a money transfer company, that received $50 million from Ripple in 2019 as part of Ripple’s first investment, said in a statement;

“MoneyGram has continued to utilize its other traditional FX trading counterparties throughout the term of the agreement with Ripple, and is not dependent on the Ripple platform to accomplish its FX trading needs,” MoneyGram specified.

“As a reminder, MoneyGram does not utilize the ODL platform or RippleNet for direct transfers of consumer funds – digital or otherwise.”

Although MoneyGram was not included in the lawsuit, SEC cited its relationship with Ripple in the complaint.

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“The Money Transmitter became yet another conduit for Ripple’s unregistered XRP sales into the market, with Ripple receiving the added benefit that it could tout its inorganic XRP ‘use’ and trading volume for XRP,” the SEC complaint noted.

In response to the SEC lawsuit, Ripple’s CEO Garlinghouse called the case “an assault on crypto at large.” The SEC didn’t want to foster innovation in the digital asset space, Garlinghouse said in a message to employees posted on the company’s blog.

“The SEC is fundamentally wrong as a matter of law and fact,” Garlinghouse told CNN. “The SEC has permitted XRP to function as a currency for over eight years, and we question the motivation for bringing this action just days before the change in administration.”

Back in October, the CEO tweeted that the company would move its headquarters to another country if the regulatory view on cryptocurrencies in the United States wouldn’t get clarified.

“Although the SEC’s decision brings an even greater sense of urgency to our decision whether to move our HQ outside the US, we also look forward to working with the new Biden administration to see if we can find a rational path forward here,” Garlinghouse told Ripple employees.