SEC Will Sue Ripple Over XRP's Security Status

Key Takeaways

  • The SEC plans to sue Ripple on the grounds that XRP is a security.
  • Other blockchain firms have faced similar lawsuits and settled quickly, so this may not harm Ripple.
  • Ripple nevertheless intends to fight the lawsuit.

The U.S. Securities and Exchange Commission (SEC) is reportedly preparing to sue Ripple over its ongoing sales of the XRP token.

CEO Says Ripple Will Fight Back

On Twitter, Ripple CEO Brad Garlinghouse explained the situation.

“Today, the SEC voted to attack crypto,” he wrote. “Chairman Jay Clayton, in his final act, is picking winners,” Garlinghouse said, referring to the fact that Clayton will leave his position by the end of the year. He added that the SEC chair is “trying to limit US innovation in the crypto industry to [Bitcoin] and [Ethereum]. ”

Despite the emerging lawsuit, Garlinghouse says his firm will continue to use XRP. He adds that Ripple is “ready to fight and win,” and concludes that the “battle is just beginning.”

Beyond that, details of the lawsuit are uncertain. Ripple has not released an official statement. Rather, Garlinghouse has confirmed the details to Fortune, one of the first sites to report the news. The SEC, meanwhile, has not confirmed that it plans to file the suit.

Is XRP a Security?

Like most other SEC lawsuits involving blockchain companies, this case involves the question of whether Ripple’s XRP token is a security, and whether sales of the token are a security offering.

It is likely that the XRP token does constitute a security. It seemingly meets the definition of the Howey Test, which considers securities to be any investment asset with profits that depend on promotion.

Furthermore, this is not the first SEC securities lawsuit against a crypto company. Several other major firms, including (EOS) and Sia, have been sued by the SEC. Those companies merely settled and paid a fine, and were not forced to admit to or deny the claims made by the SEC.

Unlike many previous cases, through, Ripple did not run an initial coin offering. Its token sales are ongoing, and, as of mid-2019, Ripple had raised over $1 billion through its continuing sales. The continuing sales could complicate matters, but even this is not certain.

Though Ripple has previously faced lawsuits around its security status, those were class action suits from private parties. This is the first time Ripple has been targeted by the SEC on the issue.

Regardless of the outcome, Ripple will probably continue to operate. Furthermore, even a negative outcome could be beneficial, as the decision would provide certainty for investors.

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