Ripple Labs Inc is the company behind XRP, the native digital asset transacted on the Ripple network. In December 2020, the SEC brought a suit against Ripple and two of its senior executives.
Ripple had allegedly violated Section 5 of the Securities Act by selling Ripple’s native digital asset XRP beginning in at least 2013. The SEC argues that XRP stipulates an investment contract, and is therefore subject to federal securities laws.
Ripple’s CEO, Brad Garlingouse, and Ripple’s CEO, Chris Larsen, a Ripple co-founder, allegedly aided and abetted Ripple’s Section 5 violations. Each defendant individually filed a request to throw the case out.
The court rejected all arguments, emphasizing that “the SEC need not demonstrate that the Individual Defendants were aware that Ripple’s scheme was illegal. . . . Rather, the SEC must show that the Individual Defendants knew, or recklessly disregarded, the facts that made Ripple’s scheme illegal.”
It’s the most heated crypto litigation of all time so far. The court will move next to determine whether XRP is a “security” under federal securities law. That decision has major consequences for the crypto industry at large.
XRP has found the ire of government regulators because they made a lot of money. There was a lot of transaction value happening on the network, and Ripple operates in a gray area. They were offering securities to the general public and non-authenticated investors, which is a faux pa. An entity such as Ripple can only sell to accredited investors in such projects.
The federal government wants to regulate such activity and be part of the action. There’s always a financial reason for the government or the Fed to take some type of control. Ripple will be pressured to sacrifice its censorship resistance.
When you do that, you’re left with another centrally controlled monetary system like the ones we have now. That virtually guarantees it will be manipulated.
Ripple also has government partnerships with large industry players that they’re working with, as well, which requires a certain semblance of regulatory oversight. Ripple plays in a world of big controlling individuals and entities, which care about control and power.
If you play in that world, you’re touching that world, and they are going to clamp down on you, because they want a piece of the action.
If you’re the 900th biggest cryptocurrency out of 1000, the government won’t come after you, because they see no value in controlling your token. XRP wanted to play ball with regulators and big banks, and this is what they should have expected to get all along.
Ripple is a settlement system, currency exchange, and remittance network, created by Ripple Labs Inc., a US-based technology company. Ripple was released in 2012 on a distributed ledger protocol, which is not quite a blockchain but similar. The protocol supports tokens which represent fiat currency, cryptocurrency, commodities or other units of value such as frequent flier miles or mobile minutes, along with its native cryptocurrency XRP.
So, while Ripple is not exactly like a lot of the cryptocurrency projects out there, it is similar enough for this case to have implications for the entire space. Therefore, this case is sure to have an effect over the entire cryptocurrency industry.