Ripple, one of the most prominent firms in the cryptocurrency companies, said Monday night that the Securities and Exchange Commission is planning to begin a surprise lawsuit against the corporation over the possible sale of unlicensed securities, according to a report by Fortune.
Ripple CEO Brad Garlinghouse and cofounder Chris Larsen are identified as defendants in the lawsuit. The SEC filed the case on Tuesday afternoon, charging that the firm and officials exchanged $1.3 billion in unregistered stock.
The action will follow years of discussion between the business and the department as to whether XRP, the digital currency affiliated with Ripple, is a security, which must be registered with the regulator.
The third most famous cryptocurrency is XRP, which is estimated to have a market cap of $23 billion.
Bitcoin and Ethereum Safe, But Ripple…
In recent years, the SEC has ruled that Bitcoin and Ethereum, the two most valuable cryptocurrencies, are not stocks, partly on the basis that they are autonomous without any entity or corporation in control of them.
XRP differs from Bitcoin and Ethereum in that the latter two currencies are minted in a sluggish, continuous process called mining. For a corporation called Ripple Labs in 2012, Larsen and others, by contrast, created 100 billion XRP units in one fell swoop.
Although Ripple continues to possess the lion’s share of XRP, the majority of its treasury is stored in inventory to be distributed in anticipated allotments. In comparison, Garlinghouse and Larsen also hold a considerable number of XRP. This structure led some observers to consider that XRP was more akin to a company’s portfolio than to a currency.
The matter will now be resolved by a federal judge in a situation that would have consequences for the booming cryptocurrency market. The SEC recently won a case involving the messaging service Kik, which offered cryptocurrency tokens to its clients.
A judge ruled unlicensed securities to be the tokens in question in that case.
Ripple’s Preemptive Moves
The legal dustup comes months after Larsen and other Ripple administrators suggested that, in answer to what they claim is regulatory overbearing conduct, the company will move its headquarters outside the U.S.
Garlinghouse said on Monday that it was “confusing” that the SEC will pursue prosecution even if countries like Singapore, Switzerland, and Japan declined to treat XRP as a precautionary move.
Ripple has strongly fought back on the notion of XRP being a defense for years. The corporation notes that, if it desires, it has no discretion to tap reserve funds and that XRP has been extremely localized in cross-border trading since it is used as a bridge currency by banks and other retailers.
According to Garlinghouse, the concept of XRP by the SEC as a defense governed by Ripple is akin to the view of oil as a security managed by Exxon.
Ongoing Regulation of Cryptocurrencies
The SEC is not the only regulator in the United States drawing the ire of blockchain developers. Over the last week, the Treasury Department has also implemented a rule that would require banks and exchanges like Coinbase to verify the identity of so-called unhosted machines and app wallets that will deal with Bitcoin and other cryptocurrencies.
Critics contend that the move could stifle the emerging economy known as’ decentralized finance (DeFi)’ and complain that the proposed legislation, which will include the holidays, has too restricted a 15-day review period.
Garlinghouse describes the Treasury decision and the SEC situation as parting shots by Trump administration officials that are relentlessly hostile to cryptography. He hoped that the industry would find greater favour with the current Biden administration.
He says that, in the meantime, Ripple plans to litigate.
“Garlinghouse said, adding, “We’re trying to stay on the right side of history.”