The Commission claims that Garlinghouse, Larsen and Ripple have engaged in an "unregistered, continuous digital asset securities offering" to investors since 2013.
The United States Securities and Exchange Commission has taken disciplinary suits against Ripple and its CEO, Brad Garlinghouse, and co-founder Christian Larsen.
In complaints brought today at the federal district court in Manhattan, the Commission claims that the XRP token is categorized as protection and accused Ripple and the two executives of collecting more than $1.3 billion in a "unregistered, ongoing digital asset offering" to investors starting in 2013.
The SEC also charges that Ripple had distributed XRP for "labor and marketing services" and that Garlinghouse and Larsen had not reported their personal XRP revenues, valued at $600 million.
"[These actions] 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,” said Stephanie Avakian, director of the SEC's Enforcement Division.
Under the SEC Rules, persons and crypto businesses must file their offers with the Commission or under an exception if they count as shares. However, which tokens count as securities remain an incredibly controversial issue. The crypto business has been waiting for the SEC's clarification or new regulations on the topic for a long time.
Meanwhile, the SEC claimed that Garlinghouse and Larsen were unwilling to report XRP because it acted as an expenditure in Ripple and directly benefited the couple. The company and its two executives could face disgorgement of their earnings as well as civil fines.
News of the pending SEC litigation emerged yesterday, triggering a dramatic decline in the price of XRP—at the time of publishing, the token was priced at $0.45, down more than 20% in the last week. Garlinghouse answered the Twitter allegations, stating that the SEC "voted to attack crypto."
"The SEC is doing the opposite of 'promoting innovation' here in the US," Garlinghouse said, citing FinHub from the Commission, revealing that it will become a stand-alone office earlier this month. "It's not just XRP that they're attacking here."
Ripple Board Member and SBI Holdings CEO Yoshitaka Kitao said he was "optimistic that Ripple will prevail in the final ruling." Kitao said he claimed that Japan's financial watchdog "has already made it clear that XRP is not a security" and anticipated similar outcomes from U.S. regulators.
David Schwartz, Chief Technology Officer of Ripple, appeared less optimistic than Kitao in response to Twitter charges:
"The United States is one of the few countries where regulators will, after years of you operating in full light of day and frequently updating them on everything you're doing, turn around and tell you that you should have known you were breaking decades old laws all along. Apropos of nothing, of course.
Garlinghouse announced the SEC's impending action last night. In November, he said that because the majority of RippleNet customers are based outside of the United States, a securities designation wouldn’t necessarily adversely affect the company’s underlying business.
Earlier this year, Larsen said Ripple is considering relocating outside the U.S. amid growing frustration at the lack of regulatory clarity.
