Ripple responds to SEC charge: “Ripple never held an ICO”

Rick Steves

“Ripple claimed XRP did not fulfill the criteria for traditional securities regulation and denied that its original sale of the token did not constitute the SEC’s version of an “offering.”

Morgan Stanley sees Blockchain's best use for Securities

Ripple has issued an official response to the allegations of the U.S. Securities and Exchange Commission (SEC) over the illegal sale of XRP.

In the court documents filed in the Southern District of New York, the word “denies” comes up 440 times as Ripple refutes the SEC’s allegation that the firm engaged in an illegal securities offering when they first issued XRP to investors.

“Ripple denies it engaged in any offering of securities; denies the inaccurate characterization of the legal advice Ripple received regarding XRP; and denies that it engaged in a single ‘offering’ of XRP.”

“Ripple claimed XRP did not fulfill the criteria for traditional securities regulation and denied that its original sale of the token did not constitute the SEC’s version of an “offering.”

“Before this case, no securities regulator in the world has claimed that transactions in XRP must be registered as securities, and for good reason. The functionality and liquidity of XRP are wholly incompatible with securities regulation. To require XRP’s registration as a security is to impair its main utility… Treating XRP as a security… would subject thousands of exchanges, market-makers, and other actors in the gigantic virtual currency market to lengthy, complex and costly regulatory requirements never intended to govern virtual currencies.“

Ripple told the court the firm has never attempted to raise money on the promise of profits, which is the premise that gives the SEC authority to supervise the cryptocurrency ecosystem.

“As a matter of economic substance, XRP categorically differs from the various instruments and business arrangements that Congress authorized the SEC to regulate — all of which, unlike Ripple, involve “schemes devised by those who seek the use of the money of others on the promise of profits.” Howey, 328 U.S. at 299.

“Every other case in which courts have ruled that transactions involving a digital asset were investment contracts involved an issuer’s ICO or other promise of future tokens to raise money to develop a digital-asset product, as well as a contractual relationship between the issuer and asset purchasers. Ripple never held an ICO, never offered future tokens to raise money, and has no contracts with the vast majority of XRP holders”, Ripple stated to the court.

SEC accuses Ripple of $1.3 billion unregistered securities offering

In December 2020, the SEC filed an action against Ripple Labs Inc. and two of its executives, for raising over $1.3 billion through an unregistered digital asset securities offering.

The complaint accuses co-founder Christian Larsen and CEO Brad Garlinghouse for raising fund since 2013 in an unregistered securities offering to investors in the U.S. and worldwide.

Stephanie Avakian, Director of the SEC’s Enforcement Division, said at the time: “Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution and a secondary trading market, must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies.

“We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”

“Either play by the rules or we will shut you down”

New York Attorney General Letitia James has recently warned industry members that the State of New York will not tolerate unregistered cryptocurrency operations. They could potentially face “both civil and criminal liability”.

Attorney General Letitia James said: “Too often, greedy industry players take unnecessary risks with investors’ money, but, today, we’re leveling the playing field and issuing alerts to both investors and industry members across the nation. All investors should proceed with extreme caution when investing in virtual currencies. Cryptocurrencies are high-risk, unstable investments that could result in devastating losses just as quickly as they can provide gains”.

“We will not hesitate to take action against anyone who violates the law. Two weeks ago, we filed a lawsuit to shut down Coinseed’s fraudulent operation. Last week, we ended both Bitfinex and Tether’s illegal activities in New York. And now, today, we’re sending a clear message to the entire industry that you either play by the rules or we will shut you down.”

The Attorney General Office has recently banned Bitfinex and Tether from operating in New York. The ruling followed a thorough investigation of 2.5 million documents that concluded that Tether falsely represented that each of its stablecoins were fully backed, one-to-one, by U.S. dollars in reserve at all times.

The New York AG also banned crypto trading platform Coinseed from operating in the State after operating as unregistered broker-dealers for more than three years while collecting over $1 million in investors’ assets.

“Millions around the country and the world today use cryptocurrencies as decentralized digital currencies — unlike real, regulated government currencies, including the U.S. dollar — to buy goods and services, oftentimes anonymously, through secure online transactions”, said NY AG James at the time.

Ripple: from cryptocurrencies to “real, regulated government currencies”

Ironically, Ripple’s XRP is now being considered by many countries as the base ledger for their central-backed digital currencies (CBDCs). Ripple has announced it is piloting a private version of the XRP Ledger.

CPA Australia has released a report on CBDC which stated that France’s central bank, Banque de France, has openly discussed Ripple/XRP as a possible platform for Europe’s central digital currency.

Over 80% of Central Banks are actively studying the development of their own digital currencies and Ripple claims its CBDC ledger is both private (for transaction privacy and control over the currency) and interoperable (to connect with today’s existing global financial infrastructure, as well as other CBDCs and other digital currencies), as well as customizable.

 

 

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