The company and its CEO Brad Garlinghouse have been accused of fraud and securities law violation – for the third time this year.
A new lawsuit against Ripple and its top officer was filed in the Superior Court of California last week. David Oconer, the lead plaintiff under this latest US suit, insists that Ripple’s digital coin XRP should be classified as security that was issued and distributed in violation of existing securities law.
Oconer, a private XRP investor alleges that the XRP cryptocurrency issued and distributed by Ripple Labs is conflated with the proprietary technology of the company, managed and distributed in a way that makes it similar to traditional security. Moreover, the plaintiff insists that Ripple Labs and its CEO Bradley Garlinghouse used limited distribution tactics to boost the token’s price and profit from that.
“XRP offered and sold by defendants had all the traditional landmarks of security, yet defendants failed to register them as such. The purchase of XRP constitutes an investment contract as XRP purchasers, including plaintiff, provided consideration (in the form of fiats such as US Dollars and other currencies) in exchange of XRP,” the filing reads.
This is the third class action lawsuit against Ripple Labs that claims that the centralized nature of the coin and its mining-free distribution model have allowed the company to run its initial coin offering (ICO) for an unlimited time period. As a result, the company managed to raise close to $100 million by selling its own cryptocurrency solely in the last quarter of 2017.
Ripple and its top officers have consistently denied the accusations that XRP is a security. In April, Cory Johnson, Ripple’s chief market strategist said that XRP has nothing to do with a security as it does not meet the standards for what a security is based on in the history of court law.
Meanwhile, the US Securities and Exchange Commission (SEC) has yet to define its position. In June, the head of SEC’s Corporation Finance Division, William Hinman, explained that the regulator does not consider Ethereum a security, but Ripple’s token was not mentioned, which left the coin dangling in the grey zone and created perfect conditions for new legal class actions.
If it turns out that XRP is a product of a never-ending illegal ICO, running under SEC’s nose, all three lawsuits will be successful and will create an important precedent for the whole cryptocurrency industry.