SEC files lawsuit against Ripple and two executives, alleging the firm brought in over $1.3 billion in ongoing, unregistered securities sale

The Securities and Exchange Commission has filed a lawsuit against Ripple, CEO Brad Garlinghouse and co-founder Chris Larsen for conducting what the regulator alleged to be a $1.3 billion unregistered securities sale. 

The complaint "alleges that Ripple raised funds, beginning in 2013, through the sale of digital assets known as XRP in an unregistered securities offering to investors in the U.S. and worldwide. Ripple also allegedly distributed billions of XRP in exchange for non-cash consideration, such as labor and market-making services," per a statement, which adds:

"According to the complaint, in addition to structuring and promoting the XRP sales used to finance the company's business, Larsen and Garlinghouse also effected personal unregistered sales of XRP totaling approximately $600 million. The complaint alleges that the defendants failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of the federal securities laws."

"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," Stephanie Avakian, Director of the SEC's Enforcement Division, said in a statement.

Garlinghouse said Ripple plans to fight the case in a series of Twitter comments yesterday. He previously expressed discontent with current U.S. regulations, alleging in a November interview with The Block that there isn't a level playing field for digital assets, especially Ripple. In his tweets he reiterated this position, saying SEC Chairman Jay Clayton is "picking winners" with this action.


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Of particular note in the complaint is the alleged production of two warning letters from lawyers in 2012 which indicated that XRP could be considered an investment contract.

As the complaint explains:

"The law firm provided two memos—one on February 8, 2012 and another on October 19, 2012 (the “Legal Memos”)—that analyzed these risks. The first memo was addressed to the Co-Founder and another individual, and the second to Larsen, the Co-Founder, and Ripple... The Legal Memos warned that there was some risk that XRP would be considered an “investment contract” (and thus a security) under the federal securities laws depending on various factors. These included, among other things, how Ripple promoted and marketed XRP to potential purchasers, the motivation of such purchasers, and Ripple’s other activities with respect to XRP. If individuals purchased XRP “to engage in speculative investment trading” or if Ripple employees promoted XRP as potentially increasing in price, the Legal Memos warned that Ripple would face an increased risk that XRP units would be considered investment contracts (and thus securities)."

The SEC complaint can be found below:

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About Author

Aislinn Keely is a reporter on The Block's policy team holding down the legal beat. She covers court decisions, bankruptcies, regulatory actions and other key moments in the legal sphere, putting them in context for the wider crypto industry. Before The Block, she lent her voice to the NPR affiliate WFUV and helmed Fordham University's student newspaper. Send tips or thoughts on all things policy and legal to [email protected] or follow her on Twitter for updates @AislinnKeely.