UPDATE (4:30 P.M. EST DECEMBER 22): The SEC has formally filed suit against Ripple, Garlinghouse and Larsen. Details and the full complaint can be found here.
The U.S. Securities and Exchange Commission (SEC) is set to sue Ripple.
Fortune reports that the "lawsuit will also name Ripple's CEO Brad Garlinghouse and cofounder Chris Larsen as defendants." Brad Garlinghouse, Ripple's CEO, told Fortune that SEC Chairman Jay Clayton "shamefully...has decided to sue Ripple, and leave the legal work to the next Chairman."
Garlinghouse reiterated his comments in a series of posts on Twitter:
Today, the SEC voted to attack crypto. Chairman Jay Clayton - in his final act - is picking winners and trying to limit US innovation in the crypto industry to BTC and ETH. (1/3) https://t.co/r9bgT9Pcuu— Brad Garlinghouse (@bgarlinghouse) December 22, 2020
The SEC - out of step with other G20 countries & the rest of the US govt - should not be able to cherry-pick what innovation looks like (especially when their decision directly benefits China). Make no mistake, we are ready to fight and win - this battle is just beginning. (3/3)— Brad Garlinghouse (@bgarlinghouse) December 22, 2020
According to The Wall Street Journal, "the lawsuit revolves around whether XRP, a digital asset that the company launched in 2012, is actually a security that should have been registered with the SEC."
In a November interview with The Block, Garlinghouse expressed his dissatisfaction with the regulatory environment in the U.S., telling The Block that there isn't a "level playing field" for digital assets in the current regulatory climate adding that Ripple was "fighting with one hand tied behind our back."
In October, Larsen, Ripple's co-founder and executive chairman, warned that the firm may leave the U.S. for a more favorable jurisdiction.
Ripple's general counsel, Stuart Alderoty, later published a Wells Submission — a kind of response to an official warning of pending enforcement action — in which the firm sought to rebut the SEC's expected claims.
"The SEC’s theory, that XRP is an investment contract, is wrong on the facts, the law and the equities," the firm said. "To prove its case amounts to an unprecedented and ill-conceived expansion of the Howey test and the SEC’s enforcement authority against digital assets."
The submission's contents suggest that the SEC's lawsuit will focus in part on the firm's sales of XRP, among other potential areas.