New Lawsuit Alleges XRP Sale Violated Security Laws
- The new allegations are coming from the same firm which unsuccessfully tried to sue crypto derivatives exchange FTX for $150 million in November 2019.
- The company, Bitcoin Manipulation Abatement, is looking to “recover damages” and obtain “compensatory damages”.
Ripple CEO Brad Garlinghouse speaking at a Yahoo! Finance conference. Yahoo! Finance
Ripple has once again been accused of violating security laws while selling and marketing its XRP cryptocurrency, this time by a little known Puerto Rico-based firm.
According to court documents filed on 1 May, a company called Bitcoin Manipulation Abatement (BMA) has alleged that both Ripple and its CEO, Brad Garlinghouse, had misled investors and sold XRP as an unregistered security when hosting its $1.1 billion sale. The company is looking to “recover damages” and obtain “compensatory damages” in regards to the alleged violations.
Ripple has been accused of misleading its investors with false announcements, in order to “artificially inflate the price at which they can sell XRP”, and of publicly promoting the sale without it being registered with the relevant regulators. BMA further claimed that the cryptocurrency had no utility at the time of its first sale, and that its value was coming from being a speculative investment.
The firm, which has only one director, Pavel Pogodin, made headlines for the first time in November 2019, when it filed a $150 million lawsuit against crypto derivatives exchange FTX. At the time, BMA accused the exchange of Bitcoin market manipulation and selling unlicensed securities in the United States. The case was thrown out of court a month later.
This is not the first time Ripple has been hit by a lawsuit alleging the firm sold XRP tokens as unregistered securities. The San Francisco-based company was hit by a class-action lawsuit in May 2018, which also accused the firm of deceiving investors and violating securities laws. Ripple tried to dismiss the case last December, but was unsuccessful, and the lawsuit is currently moving forward.
- A federal judge ruled that the sale of XRP through exchanges and algorithms did not qualify as selling securities, which could have a major impact on several SEC lawsuits.
- The institutional sale of the token, however, did violate federal securities laws, and the lawsuit between the SEC and Ripple will have to go to trial.
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- These documents are seen as central in Ripple’s battle against the SEC, which in 2020 accused the company of selling its XRP token without registering it as a security.
- The documents in question are internal emails, text messages, and expert reports that followed Hinman’s 2018 speech, in which he said ETH and BTC were not securities.
- The exchange argues that the SEC failed to provide a “fair notice” that selling XRP was illegal, and that it previously made public statements that those transactions were lawful.
- Coinbase also pointed out that the SEC is yet to provide clear guidance to crypto businesses, and that it keeps being inconsistent about its enforcement approach.