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Overview of the Ripple lawsuit

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With the development of cryptocurrencies, the core of the Securities and Exchange Commission’s concern has been determining whether digital assets should be classified as securities or money. 

On this basis, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripples Labs on December 22, 2020.

What was and is the outcome of this lawsuit against ripple you may ask. Read on to learn more as we bring an overview of the ripple lawsuit in this article.

What were SEC claims against Ripple?

The SEC claimed that they were suing Ripples Lab for raising roughly $1.3 billion through unregistered securities known as XRP. Although, in 2015, the Justice Department declared Ripple XRP to be a cryptocurrency, exactly like Bitcoin and Ethereum. 

However, the official SEC claims stated that Brad Garlinghouse and Christian Larsen (CEOs of Ripples Lab) raised money for Ripple XRP startup in an unauthorized issuance of digital asset securities. Ripple is said to have sold their coins to raise $1.3 billion between 2013 and 2020.

The more terrifying accusation made by the SEC against Ripples Lab is that they had traded the XRP cryptocurrency for “labor and market-making services” to boost Ripple XRP sales. As a result, SEC filed charges against the CEOs for violating federal securities laws by failing to register the token sale.

The complaint further claims that although Garlinghouse publicly said that he was “long XRP” when he was selling his holdings and made $600 million in the process.

Stephanie Avakian, the Director of the SEC’s enforcement division, claims that Ripple XRP fell short of the regulatory standards required to hold its initial public offering specifically stating that “Unless an exception from registration exists, issues seeking the advantages of a public offering, including access to retail investors, broad distribution, and a secondary trading market, shall conform with the federal securities laws”.

In a different statement, she criticized Ripple for failing to provide prospective investors with the adequate Ripple XRP transparency necessary to safeguard market participants. Such disclosures, in Avakian’s opinion, are essential for preserving the country’s “strong public market system.”

The effect of the lawsuit on the future of crypto?

If the SEC prevails in the legal dispute, XRP (the native cryptocurrency of the Ripple Blockchain) will no longer be regarded as a currency in the US but rather as security. This will impact the future of crypto as a legal standard will be established that leads to the classification of other cryptocurrencies like it as securities. 

Therefore, the lawsuit against Ripple is crucial for all parties involved in the cryptocurrency industry, including investors, developers of blockchain technology, and global lawmakers.

What and How was Ripple’s response?

After SEC’s claims were made public, Ripple only made a response through tweets and blog posts via their Twitter account.  The most likely reason for doing this was to preserve the company’s reputation and reassure investors right away.

A series of blog posts published by Ripples Lab on their social media account discusses how the SEC favors projects like Bitcoin and Ethereum while attacking other cryptocurrencies which creates a terrible disadvantage for the U.S. blockchain industry.

Brad Garlinghouse also responded to the announcement in a Twitter response by claiming that SEC was targeting not just Ripple but the whole US blockchain industry referring to the SEC’s non-securities declaration of Bitcoin and Ethereum, He went further to claim that Ripple XRP is a currency, not an asset, for investments and that the company spent many years collaborating with the SEC on regulatory issues, as mentioned in Ripple’s post.

After 39 days of SEC’s claims, on January 29, 2021, Ripple Labs gave its first legal response to the SEC’s claims.

Ripple’s first official legal response

The legal response was in a 93-page long document written under four counters citation which stated as follows;

Ripple XRP is not an investment contract

That Ripple Labs never signed a contract of investment nature with its investors. Furthermore, because XRP is a virtual asset, it is not under the control of the SEC, therefore it has no authority over it.

The SEC is out of step domestically and globally

This is because, before the complaint, no regulator explicitly said that a virtual currency like XRP needed to be registered as a security. As a result, SEC failed to give legal clarity.

The SEC is picking winners and losers

Since the SEC said explicitly that the sales of Bitcoin and Ethereum are “not securities transactions”, XRP cannot be singled out for discrimination.

The SEC has distorted the facts

That SEC has taken statements out of context and presented them as such. In a letter to the SEC, Garlinghouse promised to disprove their claims in due course.

Update on the Ripple XRP lawsuit

As the lawsuit comes to a close, various predictions have surfaced, most of which support Ripple. Regardless of the outcome, experts think the case has significant implications for the Bitcoin industry. 

According to experts at Hart David Carson, the outcome will influence what kind of regulatory control cryptocurrencies will get in the US. It has been concluded that a settlement will do for the case’s resolution. 

Jeremy Hogan asserted that mediation will be used to reach a compromise after a previous attempt at negotiation failed. Judge Sarah Netburn, who has been in charge of the case for more than a year, will preside over the mediation.

Final Thoughts – Overview of the Ripple Lawsuit

Success for Ripple XRP on this petition would allow digital asset defendants to attempt to use the SEC’s prior actions against them in future litigation, which could put some future SEC rulings at risk and necessitate the disclosure of any existing records containing these SEC actions.

However, allowing Ripple to use a fair notice defense based on claims the SEC made or did not make to holders of the cryptocurrency Ripple XRP could provide them a considerable advantage in any enforcement actions.

In conclusion, the SEC vs. Ripple Lawsuit will have an impact on how cryptocurrency legislation develops in the future.

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  • Source: Plato Data Intelligence: Platodata.ai
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