Ripple states that the SEC will sue the corporation for what it calls a crypto shot
Ripple, one of the big crypto-monetary firms, reported on Monday night that the Securities and Exchange Commission is ready to sue the firm in a bombshell file on suspected unlicensed securities sales.
According to Garlinghouse, the complaint would also be named as defendant by Ripple CEO, Brad Garlinghouse, and co-founder Chris Larsen, who said the agency will file the case in the near future.
The SEC spokesman Judith Burns denied Fortune's request for comment or for clarification of a complaint.
The action would follow years of debate between the company and the agency if the agency sues Ripple as a safe, a digital currency, as a share of stocks, that must be entered in the agency, or is rather a currency, thus outside the reach of the SEC. XRP is the second most precious cryptocurrency with a market value of $23 billion at the moment.
The decision of Ripple to declare that it will be sued is an unprecedented decision. Garlinghouse predicts that the incoming administration of Biden will be more accommodating than the administration of Trump for the cryptocurrency industry, which implies Ripple's preventive publication may have a political aspect.
Garlinghouse also blasted the decision of the SEC to sue right in front of the holidays, saying Ripple will defend against the lawsuit. "It is not only shocking, Grinch-worthy," Garlinghouse said. "It's a crypto-industry attack and American innovation in its entirety."
Or not a safety? A security?
In recent years, the SEC agreed, in part for the sake of being decentralized, that the two valuably most important cryptocurrencies, Bitcoin and Ethereum, were not securities.
XRP is distinct from Bitcoin and Ethereum since the latter two currencies are steadily mined. In 2012, instead, in one fell swoop for a company called Ripple Labs, Larsen and others produced 100 billion XRP units. Though Ripple still owns XRP's share of the lion, the bulk of its treasury remains in reservation for sale in daily allocations. Everyone has a large amount of XRP both at Garlinghouse and Larsen. Some analysts treated XRP more like stocks than currencies in this arrangement.
For years Ripple's notion that XRP is a defense has been refusing vigorously. The company states that there is no discretion to access reserve funds as it pleases and that XRP is increasingly decentralized as it is being used by banks and other traders as a bridge currency in cross-border transactions. According to Garlinghouse, the SEC views XRP as a Ripple controlled security as an Exxon controlled security.
In a case that could have repercussions for the thriving cryptocurrency industry, the issue could now be settled by a federal judge. The SEC recently won a case involving the Kik message app, which gave its customers cryptocurrency tokens. In that case, a judge ruled unlicensed securities to be the tokens in question.
However, in the Kik case, the facts are different from those with Ripple: at the height of the 2017 crypto-bubble, Kik sold its tokens directly to former buyers, seemingly defying an SEC order at the beginning of that year. In comparison, almost 8 years ago Ripple started to explore business concepts around XRP when the agency had given no guidance on digital tokens.
The effect, as a result, is far from certain for a theoretical Ripple event.
In remarks to Fortune, the CEO of Ripple blasted Jay Clayton, its chairman, for choosing to prosecute when the presidential transition began between Clayton and other SEC officials. "There was one foot outside the door that Clayton did. He has agreed to sue Ripple quite shamefully, leaving legal work to the next president," said Garlinghouse.
The legal exposure comes months after Larsen and the rest of the managers of Ripple indicated that their headquarters could be moved from outside the U.S. in reaction to what they claim regulators are overwhelming. On Monday Garlinghouse said "it is reasonable" for the SEC to decide to sue even if countries like Singapore, Switzerland and Japan refuse to consider XRP as a safety problem.
Garlinghouse also made an imperialist note that Bitcoin and Ethereum was produced larger than any other company in communist China, while Ripple is an American company.
The SEC is not the only regulator to attract the wrath of US companies in cryptocurrency. The Treasury Department has suggested a regulation over recent week that would enable banks and exchanges such as Coinbase to verification of the identity in bitcoin and other cryptocurrencies of so-called unhosted devices and software wallet. The change will hamper the emerging sector called decentralized finance and argue that the 15-day comment period for the new regulation – which covers the vacation – is not sufficiently long.
Garlinghouse described Treasury and SEC's imminent indictment as shots of Trump's ruthlessly aggressive administrative officials against cryptography. He expected that the new Biden administration will be more beneficial to the industry.
Meanwhile, Ripple says he is able to argue.
"I don't believe we're going to be on the right side, but we must fight for all the cryptography, and we should not let the whole SEC bully the industry," Garlinghouse said.