Cryptocurrency Firm Ripple Gets In Deep Trouble
Being the first of its kind, Ripple is an extraordinary currency designed to be used by financial institutions. However, it was recently sued by an investor for breaking state and federal laws as it released unregistered securities to retail investors.
Ripple is a financial tech start-up which happens to be the third largest digital currency in the world. The complainant claims that ripple produced coins “out of thin air” and disposed of them to the people in “what is essentially a never-ending initial coin offering.”
The suit was filed in the San Francisco County Superior Court on Thursday, with a gravity of a class-action status, by Ryan Coffey. He has demanded damages “on behalf of all investors who purchased Ripple tokens (‘XRP’) issued and sold by Defendants.”
As per the complaint, 650 XRP tokens were sold by Coffey for around $1.70 each after purchasing them at $2.60 each.
A representative from Ripple stated, “We’ve seen the lawyer’s tweet about a recently filed lawsuit but have not been served. Like any civil proceeding, we’ll assess the merit or lack of merit to the allegations at the appropriate time. Whether or not XRP is a security is for the SEC to decide. We continue to believe XRP should not be classified as a security.”
Coffey is being charged by Attorney James Taylor-Copeland who did not make a public comment on the incident. In his suit, Coffey has appealed for unspecified damages and asked a declaration from Ripple and its CEO Bradley Garlinghouse on selling unregistered securities.
The complaint argues, “The development of the XRP Ledger, and the profits that investors expected to derive therefrom, were, and are, based entirely on the technical, managerial, and entrepreneurial efforts of Defendants and other third parties employed by Defendants.”
100 billion XRPs were created by Ripple in 2013. After distributing 20 percent of the coins to its individual founders, the company took control of the remaining 80 percent XRPs. The lawsuit claims that they “earned massive profits by quietly selling off this XRP to the general public, in what essentially a never-ending initial coin is offering (“ICO”).”
Afterward, Ripple duped the investors by making them believe that public demand for XRP was increasing when it was not. Moreover, Ripple tried to bribe crypto exchanges to list XRP in order to defend its declaration about XRP’s popularity.
These allegations have come in a situation where the US government is already trying to tame digital currencies. Interestingly, this is the first time a crypto company has been accused of selling coins which were never created.
Furthermore, negative press has affected the goodwill of the crypto community as a whole. News reports are full of heists on crypto exchanges, crypto frauds and illegal activities involving virtual currencies. On an average, governments across the globe do have a negative outlook towards virtual coins.
Even if court’s decision comes in Ripple’s favor, it would have already lost a significant amount of respect among the investors. As of now, investors have only two options; either sell their holdings or HODL till the final judgment gets released.