To say that trading cryptocurrencies is a volatile ride would be an understatement, good gains can be made but on the flip side you can also lose your shirt. A jilted investor has taken up the fight against the world’s third largest cryptocurrency alleging that the company has violated the Federal Securities Act.
San Diego attorney James Taylor-Copeland filed the suit on Thursday on behalf of Ryan Coffey who is seeking damages “on behalf of all investors who purchased Ripple tokens (“XRP”) issued and sold by Defendants,”. In addition to Delaware Corporation Ripple Labs Inc, XRP II limited liability company, CEO Brad Garlinghouse, and 10 unnamed parties were also included in the suit which is currently doing the rounds on Reddit.
The class action claims that Ripple created billions of coins “out of thin air” and profited immensely by selling them to the public in what it terms as a “never ending initial coin offering”. According to the summary of action;
“It arises out of a scheme by Defendants to raise hundreds of millions of dollars through the unregistered sale of XRP to retail investors in violation of the registration provisions of state and federal securities laws … Unlike cryptocurrencies such as Bitcoin and Ethereum, which are mined by those validating transactions on their networks, all 100 billion of the XRP in existence were created out of thin air by Ripple Labs at its inception in 2013.”
Specifically, it claims that the Securities Act has been violated as federal law requires any security that is offered or sold to the public be registered with the Securities and Exchange Commission (SEC). Whether a financial instrument qualifies as a security depends on something called the Howey test, a standard derived from a 1946 Supreme Court case. It is still being debated whether digital tokens such as XRP are considered as securities. Ripple’s head of corporate communications, Tom Channick, told Coindesk;
“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.”
The suit also alleges that Ripple reportedly offered to bribe Coinbase in order to get XRP listed in late 2017;
“Ripple Labs is reported to have offered Coinbase more than $100 million worth of XRP to start letting users trade XRP. A Ripple executive is also reported to have asked whether a $1 million cash payment could persuade Gemini to list XRP in the third quarter of 2017.”
This will be one to watch as no official decision has been made yet by the SEC as to the status of cryptocurrencies as securities.