A class action lawsuit has been filed against Ripple Labs, its CEO, and subsidiary. The plaintiff alleges that the defendants have violated the state and federal securities laws, engaging in schemes to raise hundreds of millions of dollars through the sale of unregistered ripple tokens (XRP).
San Diego resident Ryan Coffey has filed a “securities class action” lawsuit against Ripple Labs Inc, its CEO Bradley Garlinghouse, its wholly owned subsidiary XRP II LLC, and ten related persons. Attorney James Taylor-Copeland representing Coffey filed the lawsuit with the Superior Court of the State of California, seeking damages on behalf of Coffey and all others similarly situated.
According to the court document dated May 3, Coffey purchased 650 XRP at $2.60 per token around January 6 and sold them at approximately $1.70 per token around January 18. Coffey described:
[The lawsuit] 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.
Coffey detailed in his filing, “unlike cryptocurrencies such as bitcoin and ethereum…all 100 billion of the XRP in existence were created out of thin air by Ripple Labs at its inception in 2013.”
Citing that 20 billion tokens were given to Ripple Labs’ founders and 80 billion to the company itself, he alleges that the defendants “earned massive profits by quietly selling off this XRP to the general public,” adding:
From 2013 to the present, [the] defendants have been engaged in an ongoing scheme to sell XRP to the general public in a never ending ICO…Defendants’ sales of XRP to the public accelerated rapidly in 2017 and early 2018.
He also claims that “these ICOs have become a magnet for unscrupulous practices and fraud.”
Coffey alleges that the “defendants market XRP to drive demand and increase [its] price,” including “blur[ring] differences between Ripple Labs’ Enterprise Solutions and XRP.” Other tactics include offering a bribe to Coinbase and Gemini exchanges to list XRP and promising R3, an enterprise software firm with a network of banks and financial institutions, a 5 billion XRP option, Coffey added.
At the time of this writing, XRP is trading at $0.91 on Bitfinex, a 73% drop from its high of $3.30 in January.
Citing that the US Securities and Exchange Commission (SEC) has made it clear that digital tokens including XRP often constitute “securities and may not be lawfully sold without registration with the SEC or pursuant to an exemption from registration,” Coffey elaborated:
The XRP offered and sold by [the] defendants have all the traditional hallmarks of a security…However, [the] defendants did not register XRP with the SEC, and many of the representations [the] defendants made regarding XRP were designed to drive demand of XRP, allowing defendants to obtain greater returns on their XRP sales.
Last month, the SEC stated that both XRP and ether could be classified as securities. However, Ripple’s chief market strategist, Cory Johnson, told CNBC in early April:
We absolutely are not a security. We don’t meet the standards for what a security is based on the history of court law.
Do you think this securities class action lawsuit against Ripple has any legs? Let us know in the comments section below.
Images courtesy of Shutterstock, Trading View, and Ripple Labs.
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