The XRP token is a popular digital asset offered by Ripple Inc to solve faster, decentralized payment processing without third-party intervention. Since its public release, the token has achieved a high level of popularity and has made over 20,000% in profit ratio.
However, the smooth ride of XRP to being the king of digital transactions has been momentarily halted since the beginning of this year.
The Securities and Exchange Commission of the U.S (SEC), late in December 2020, sued the parent company of the XRP tokens; Ripple Inc., specifically two top execs, Brad Garlinghouse and Chris Larsen, claiming that they spearheaded the distribution and sales of unregistered securities from 2013 to 2020, worth $1.9 billion, and amounting to over $600 million in profit.
This lawsuit left a dent in the value of XRP, mostly because major exchanges removed XRP from their list of supported tokens. At the time of compiling this article, the price of XRP was still at $0.55, which is just a few cents shy of its former position just before the lawsuit. The lawsuit saw its prices dip to about $0.27 but has been resilient ever since.
The lawsuit has raised some eyebrows, too, why the SEC decided to single out the two executives instead of the whole companies they have done with similar violations in the past. SEC in their reply, alleged that the two execs in question had the majority of insider control over what happened.
In their motion, the SEC argued that without following due registration procedure for the distributed security, the company left the rest of the public in the dark about the real information surrounding the token sales and could manipulate the trading volume if they chose to. All of this pointing towards the intentions of milking the speculative profits generated while controlling the narrative. This practice leaves a large room for risks that could befall a profit-minded investor.
The SEC pointed out an abundance of quotations and paragraphs from interviews and press briefing that showed the company constantly insinuating and openly encouraging users to trade XRP with hopes and promises of robust future value. What other way to ensure that future stronghold than encouraging buyers to hold long? This was their major motion in this unusual case against the executives; participation and encouragement of Ripple's violation of Securities and Exchange laws.
While Brad was in charge of approving sales timing and sales amount as the CEO, Chris Larsen was also a necessary consultant in the process, as the Board Chairman. This gives them a lot of preceding power over what happens and what is "approved."
JD SUPRA reported that the SEC's case has already made things obvious that it was the unregistered securities that were a problem. The speculations stirred around XRP were all in a bid to manipulate the market.
However, speculations are not the only driving force of any asset without real users, and Ripple, although being the parent company here, doesn't control the decentralized XRP as it stands. Even without Ripple Inc, the XRP asset would still stand and keep being used as long as it is accepted.
As the case dragged on for a short while, everybody kept watching from the sidelines in anticipation. Still, those who were the next most affected by the lawsuit, XRP holders, couldn't stay put for too long as their assets, collectively running in billions, were at stake too.
On March 14th, the global community of XRP holders wrote a letter to the district court in New York where the case was presented. In the letter written by John Deaton, a practicing attorney, through his Private Law Firm, the community asked the district judge, Analisa Torres, to grant them the opportunity to intervene as they were taking some of the worst hits in the ripple effects of the case. This bid was contested by SEC because they had other motives behind intervention.
They wrote that the intervention was a means to get the ball rolling again for trading the asset across platforms.
Either they have something personal with the public, or they fail to empathize at the least. They claimed that > "Congress has barred by statute the consolidation or coordination of claims without the SEC's consent, and sovereign immunity bars Movants' claims against the SEC."
The bid was eventually denied. The denial wasn't on the grounds of irrelevance but rather that the community failed to follow the District Judge's court rules. They did not submit any letter explaining what their intentions were.
This was only a mild setback as the denial only meant they followed due process, which they eventually did. The XRP community, via their social media groups and hashtags, took the 1st denial in good faith and pushed for a second bid, this time following due process.
While this was happening, Ripple wrote a different letter to the Judge, stating that there wasn't any period of "Fair warning" from SEC before such allegations were mounted on the company's reputation. In the letter, Ripple's attorney, Andrew Ceresney, wrote that.
“Lack of fair notice is a valid, constitutional defense to a government enforcement action. It is rooted in the Due Process Clause’s requirement that ‘laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited...This defense prevents a government agency from penalizing someone for violating the agency’s interpretation of the law when, in fact, there was no fair notice to the public of what that interpretation was.”
They also referred to a previous claim stating that SEC fails to give proper insight, on their amended complaint, as to whether or not XRP should be considered a security. Before the Judge, they also said that if the SEC continued to claim that XRP was felonious security, without proof, everyone trading on XRP, including the judges and public members, was trading illegal assets.
On the 29th of March, the Judge Torres gave a ruling to allow XRP holders continue with their claims and file a motion to intervene. She gave a date of April 19th for the community of investors to > *“file their Motion to intervene”. When that is done, the SEC has until May 3rd to respond. The investors also have a period of back and forth until the 17th of May.
Considering the motion, and probably the fact that investors have lost over $15 billion till date as a result of the lawsuit effects, the judge gave a ruling in favour of the investors to come through with their motion to intervene.
Although this approval doesn't necessarily mean that she will give a final ruling in favor of Ripple, it does give them a chance to bring their case forward with the certainty that she would still have to consider it. The series of legal actions that follow up, as a result, will eventually determine what wins the case.
The XRP community has since taken a heavy hit from being delisted among major exchanges, even though the plight of the parent company Ripple, does not necessarily mean the doom of XRP as a decentralized payment system. This is exactly what the spectators hope the motion should be about. If they can convince the Judge enough that Ripple is not a governing body over XRP in the real sense.
These complaints were only brought forward a few days before Jay Clayton's resignation as the Chairperson of the SEC. It gave hope to many spectators in favor of Ripple, earlier in the history of the lawsuit, that the new leadership under the newly elected president may also bring about new laws and modes of operations that will tilt in favor of Ripple. The newly appointed leadership of Gary Gensel as Chairperson is deemed to be a more crypto-friendly one, as the man himself is versatile in Tech knowledge.
Be that as it may, the greater part of affected exchanges is in the United States. Exchanges in other regions, especially Asia and France, support the asset and are not experiencing any negative trend in a market surge. This only goes further to show that Ripple does not need to directly manipulate the market movement in favor of the XRP token.
Ripple is still thriving in its quest to be the most widely accepted means of non-custodial digital payments. They can boast of a decent capacity of handling tens of thousands of transactions per second.
This lawsuit has caught a lot of attention from speculators, as much as it did with investors. In a panel discussion at the "Greater Bay Area Blockchain Week 2021" held in China, Johnstone Syren, an executive at a Compliance program at the University of Hong Kong, stated that the lawsuit was surrounded by a great deal of uncertainty that only further highlights the loopholes in the SEC's performance at overseeing the rules and guidelines of an industry as big as Cryptocurrencies'.
Johnstone also said. > "We'll get to a point where there's a face-saving settlement for both sides, pretty much like Telegram, pretty much like EOS before it, and that's where we will be left, which unfortunately is kind of like two steps forward and three steps backward."
Albert Isola, the minister for Gibraltar's digital and financial services, also gave his views on the panel. According to him,> *** "The whole thought of taking regulatory action...should be brought into play when you're breaching something."***
He further went on to state that > "The sooner they (the SEC) get their grips on actually deciding who is going to regulate this (crypto) space, how they're going to regulate the space, and why they will be doing so, the blockchain space and cryptocurrencies most especially will dramatically grow as a result of that certainty, After all, this exactly what most firms are calling for to avoid such lawsuits with porous basis."
