Since the beginning of 2018, San Francisco-based popular blockchain startup ‘Ripple’ has been aggressively moving ahead in expanding its wings in the blockchain space by collaborating with several global banking institutions.
However, Ripple Labs is found currently in the midst of a controversy as a disgruntled investor who lost some money by trading XRP tokens has filed a class action lawsuit against the blockchain startup alleging that they have violated the U.S and state-level securities laws.
Ryan Coffey is the plaintiff XRP investor has named Ripple CEO Brad Garlinghouse and 10 other parties responsible for selling unregistered securities and is seeking unspecified damages “on behalf of all investors who purchased Ripple tokens (“XRP”) issued and sold by Defendants.”
The investor argues that the startup created billions of coins “out-of-thin-air” and has essentially conducted in what appears to be a never-ending ICO and hence should be classified as unregistered securities as per the definition of both – the US Securities Act and the California Corporations Code.
“Defendants have since earned massive profits by quietly selling off this XRP to the general public, in what is essentially a never-ending initial coin offering (“ICO”),” the suit claims.
The lawsuit also accuses Ripple Labs of indulging in promotional activities. The lawsuit mentions: “In order to increase demand for XRP, and thereby increase the profits it can derive by selling XRP, Ripple Labs has consistently portrayed XRP as a good investment, relayed optimistic price predictions, and conflated Ripple Labs’ enterprise customers with usage of XRP.”
Coffey purchased around 650 XRP tokens earlier this year on Jan 5, 2018, at a price of $2.60 per XRP tokens and a total investment of $1,690. Two weeks later on Jan 18, 2018, Coffey sold his entire stake for $1,105 with a net of $551 around 32 percent.
The lawsuit has also mentioned Ripple’s attempts of persuading different exchanges to list its XRP tokens on their platform in a bid to get higher liquidity in the market. Last month in April, a report from Bloomberg News suggested that Ripple even tried to give some financial incentives to popular exchanges like Coinbase and Gemini, citing people familiar with the matter who refused to get identified.
Responding to this news about the class action lawsuit, Tom Channick, Ripple’s Head of Communications said: “We’ve seen the lawyer’s tweet about a recently filed lawsuit but have not been served. Like any civil proceeding, we’ll assess the merit or lack of merit to the allegations at the appropriate time. Whether or not XRP is a security is for the SEC to decide. We continue to believe XRP should not be classified as a security.”
On the other hand, Ripple executives have maintained their stand that XRP is exempt from getting classified as securities. However, it is not just Ripple but even Ethereum which is currently being questioned for its ICO of Ether tokens conducted four years back in 2018.
In the recently held MIT’s Business of Blockchain Conference, ex-CFTC chairman Gary Gensler said, “There is a strong case for both of them [Ether and Ripple] — but particularly Ripple — that they are noncompliant securities.”