The US Securities and Exchange Commission said Ripple Labs executives Bradley Garlinghouse and Christian Larsen manipulated the XRP exchange rate by increasing or slowing down currency sales depending on market conditions.
In an amended complaint filed on February 18, the plaintiff – the US Securities and Exchange Commission – reiterated its position that Ripple Labs, Christian Larsen and Brad Garlinghouse violated the Securities Act by selling XRP coins as of 2013:
From at least 2013 until today, defendants have sold over 14.6 billion units of digital assets called ‘XRP’ for cash or other consideration of over $ 1.38 billion (‘USD’) to fund the Ripple business and their enrichment. with Larsen and Garlinghouse.
The complaint claims that Ripple received legal advice as early as 2012 that the coin could represent a security indicator and chose to ignore it. From an economic point of view, the complaint suggests that the strategy has worked, and Ripple will continue to increase “at least $ 1.38 billion” in the coming years.
The lawsuit alleges that Larsen and Garlinghouse subsequently earned up to $ 600 million in profits from unreported XRP sales. The SEC notes that these sales took place, while Garlinghouse has repeatedly stated that they were “too long” for the XRP, suggesting that investors were misled when Garlinghouse and Larsen withdrew funds:
“Ripple created an information gap so that Ripple and the two insiders with the most control over it – Larsen and Garlinghouse – could sell XRP in a market that only had information that respondents chose to share about Ripple and XRP.”
The complaint describes a case in 2015 when a market maker at Ripple, who also paid XRP for it, temporarily stopped selling the XRP properties to Garlinghouse and Larsen as the coin price was already falling.
According to the document, Larsen instructed the market maker to “temporarily stop [sales]” and “[until [the market] recovers from this error”).
A related incident in 2016 described how the defendants were forced to adjust their net sales targets in the hope that they could “stabilize and / or increase” the price of the stranded XRP coin. Larsen and Garlinghouse agreed to reduce XRP sales, but Garlinghouse added that he “was a little more aggressive when we did.”
The SEC notes that the “information asymmetry” created by the defendants still exists so that they can continue to sell XRP with “significant risk to investors.”
Ripple General Counsel Stuart Alderoti said he was disappointed with the SEC’s latest attempt to sue Ripple Labs after years of inaction. On February 18, Aldrotti stated that the latest amended complaint did not generate anything new, and confirmed that only one legal issue remained unresolved. Aldrotti tweets:
“As many of you have seen, the Securities and Exchange Commission filed an amended complaint today. The only legal requirement remains: did certain XRP awards constitute an investment contract? “The frustration of the SEC is necessary to try to” fix “their complaint after many years of waiting for it to be filed in the first place …”
In 2020, former CFTC Chairman Chris Giancarlo argued that XRP should not be seen as a stock offer, arguing that it did not meet the criteria set out in Howie’s test.
Giancarlo previously announced that neither Bitcoin (BTC) nor Ether (ETH) are security offerings, which gave him the nickname “Crypto Dad” in the crypto world.
However, a conflict of interest may arise. As Forbes reported at the time, Giancarlo’s law firm Willkie Farr & Gallagher LLP also acted as legal counsel for Ripple. The article said that Giancarlo’s assessment that XRP is uncertain “was also based on some facts provided by Ripple.”