In early May of this year, a class action lawsuit was filed against Ripple alleging a direct connection between XRP and the company Ripple Labs, and asserting that XRP should therefore be considered a security. The new suit was filed in California and also claims there is substantial evidence that XRP constitutes a security.
As we previously reported, Ryan Coffey filed his complaint against Ripple Labs in San Francisco on May 3, 2018. According to that filing, XRP violated federal securities law because the company was too involved in the distribution of XRP, and the token should therefore be classified as a security.
The new complaint was filed by David Oconer on June 27, 2018, and names Ripple Labs as well as XRP II LLC, a money services unit associated with Ripple. The complaint alleges that the way Ripple Labs manages and issues the cryptocurrency XRP is intertwined with the company’s product offerings, creating a direct relationship between the company and XRP.
Consequently, the suit argues that the company’s conduct violates applicable securities laws. We have previously discussed in detail why XRP is not fully decentralized like some other digital currencies.
The complaint further alleges that Ripple Labs artificially promoted XRP to boost its price. It claims that restricting the circulating supply produced the intended effect. The filing states (freely translated):
Ripple’s public commitment to restrict the supply of XRP had its intended effect. In the following weeks, the price of XRP rose rapidly, from roughly $0.22 per token on December 7, 2017, to $3.38 per token on January 7, 2018.
This continues the ongoing debate over whether certain cryptocurrencies should be classified as securities — in this case, XRP. The U.S. Securities and Exchange Commission has recently stated that, to the best of its knowledge, Bitcoin and Ethereum are not securities. No similarly clear statement or formal confirmation has been made regarding Ripple.
In mid-April, Brad Garlinghouse reiterated in an interview with CNBC that XRP is absolutely not a security (freely translated):
We are absolutely not a security. We do not meet the standards and requirements for a security that are grounded in the body of case law.
Until a definitive court ruling is issued, this discussion will continue. Thailand recently adopted a law that classifies cryptocurrencies as securities based on their purported use, giving regulators clearer rules while avoiding overly stringent measures. A similar approach in the United States could also be useful. The coming months will show whether any landmark decisions emerge.
The price of Ripple has seen a slight uptick of 1.84 percent, trading at €0.42. With a market capitalization of €16.5 billion, Ripple remains the third-largest cryptocurrency by market value. Prices for other digital currencies can be found in our price overview.
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