Cryptocurrency firm Ripple expects to be sued by the SEC; XRP plunges

In this photo illustration of the ripple cryptocurrency ‘altcoin’ sits arranged for a photograph on April 25, 2018 in London, England. 

Jack Taylor | Getty Images News | Getty Images

Ripple, the fintech company best known for cryptocurrency XRP, has said it expects to be sued by the Securities and Exchange Commission over allegations that it violated investor protection laws.

The SEC is set to bring a lawsuit against Ripple, CEO Brad Garlinghouse and co-founder Chris Larsen. It will claim that the company violated laws against selling unregistered securities when it sold XRP to investors.

Garlinghouse said he expects the lawsuit to be filed before Christmas. In a statement late Monday, he said the SEC’s suit was “fundamentally wrong as a matter of law and fact” and questioned its timing.

“XRP is a currency, and does not have to be registered as an investment contract,” Garlinghouse said. “In fact, the Justice Department and the Treasury’s FinCEN already determined that XRP is a virtual currency in 2015 and other G20 regulators have done the same. No other country has classified XRP as a security.”

“The SEC has permitted XRP to function as a currency for over eight years, and we question the motivation for bringing this action just days before the change in administration. Instead of providing a clear regulatory framework for crypto in the U.S., (SEC Chairman) Jay Clayton inexplicably decided to sue Ripple — leaving the actual legal work to the next Administration.”

Clayton last month said he would step down as SEC chair at the end of the year, ahead of the expiration of his term in June.

The SEC wasn’t immediately available for comment.

Why does the lawsuit matter?

Ripple has threatened move its headquarters outside of the U.S. over the issue, with London, Switzerland, Singapore, Japan and the United Arab Emirates tipped as potential locations.

XRP declined sharply following news of the expected SEC suit. The cryptocurrency fell almost 18% Tuesday, to trade around 46 cents.

Like many other digital coins, XRP has spiked in value this year as major investors and companies have warmed to cryptocurrencies such as bitcoin. XRP is still up around 144% year-to-date.

Bitcoin, which hit a fresh record high above $23,000 last week, sank nearly 5% Tuesday to around $22,748. Ether, the second-biggest cryptocurrency by market cap, fell more than 5% to $607.

The fresh scrutiny over Ripple comes days after the Treasury Department proposed a new bitcoin disclosure rule aimed at closing money-laundering regulatory gaps. The rule would force crypto exchanges to take extra compliance steps when sending funds to so-called unhosted wallets that are not held on an exchange or by a bank.  The Treasury gave the public just 15 days to comment on the plan.

It arrives after another major company in the space, Coinbase, filed for an initial public offering. Coinbase has criticized the U.S. proposals on certain cryptocurrency transactions, calling them an “unfortunate and disappointing departure” from previous moves, and taken issue with the limited time given for a public response.

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