In the past few weeks, there has been a lot of talk of existing cryptocurrencies potentially being labeled securities. Two currencies are of particular concern in this regard, as that status could easily apply to both XRP and Ethereum. It now seems a lawsuit has been filed against Ripple for violating securities laws in issuing XRP tokens.
The XRP Lawsuit is Disconcerting
There is a good chance that both Ethereum and XRP can be considered securities because of the way they were issued initially. Although Ethereum set up a Swiss foundation to bypass most of those concerns, the same does not necessarily apply to Ripple and XRP. With a formal lawsuit having been filed against Ripple for violating securities laws, it has become apparent that these concerns are more than legitimate.
The lawsuit, filed by Taylor-Copeland Law, is a class-action suit against Ripple Labs which also mentions Ripple CEO Brad Garlinghouse. It seems a bunch of investors have gotten together and filed this lawsuit over their losses associated with holding XRP. For those unaware, Ripple has sold off XRP tokens over the past few months, although the team has always been transparent about doing so.
While the Ripple team has locked up over half of the XRP supply in time-locked contracts, they continue to offer these tokens to institutional investors and financial service providers. Any tokens not sold during the month they were made available will be put in a new contract at the end of the queue. It is a business model that seemingly works quite well, even though some people genuinely take offense to any fluctuations in the cryptocurrency world.
According to this lawsuit, Ripple Labs and the company’s CEO have made “major profits” by violating state and federal securities laws. The sale of XRP is the main reason for these gains, according to the filing. Moreover, the lawsuit claims XRP is part of a never-ending initial coin offering. It will be pretty difficult to make that charge stick, but it does set a very interesting precedent for future class action lawsuits like this one.
It was to be expected that the news regarding Ripple paying Coinbase to get XRP listed – and having that request denied – would be used against the company in one way or another. The lawsuit mentions this behavior as if it is a bad thing for a cryptocurrency or digital asset to try and get listed on bigger trading platforms. The plaintiffs also take offense to the fact that Ripple Labs locked up over half of the coin supply, even though this has seemingly had a minimal impact on the XRP price so far.
For the time being, it is unclear what we can expect from this lawsuit. While the information is out in the open as of right now, there is no indication that this lawsuit will have any major long-term consequences. It will be difficult to prove that Ripple Labs actually violated securities laws, although there are some factors which could eventually disrupt the project in one way or another.