The US Securities and Exchange Commission (SEC) filed a lawsuit Tuesday against Ripple Labs Inc., a leading cryptocurrency and blockchain firm, and two of its executives. The SEC alleges that Ripple raised over $1.38 billion through an unregistered offering of a digital asset security called “XRP.”
The SEC filed the complaint before a federal district court in Manhattan. It is charging Ripple, Christian Larsen, the company’s former CEO; and Bradley Garlinghouse, the company’s current CEO, with violations under Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint alleges that Ripple, Larsen, and Garlinghouse raised funds since 2013 through illegal offerings of XRP to investors in the US and worldwide. The complaint also alleged that Larsen and Garlinghouse “orchestrated these unlawful sales and personally profited by approximately $600 million from their unregistered sales of XRP.”
Moreover, the SEC said that Ripple failed to file a registration statement and created an “information vacuum” by not providing the investors with material information required when soliciting public investment. Therefore, Ripple, Larsen, and Garlinghouse sold XRP into a market possessing exclusively the information that they shared about Ripple and XRP.
Stephanie Avakian, Director of the SEC’s Enforcement Division, said in a press release:
Issuers seeking the benefits of a public offering … must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies. 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.
The SEC “seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.”
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