The United States Securities and Exchange Commission alleged that Ripple Labs executives, Bradley Garlinghouse and Christian Larsen, They manipulated the price of XRP by increasing or slowing down their coin sales based on market conditions.
In an amended complaint filed on February 18, the complainant, The U.S. Securities and Exchange Commission reiterated its stance that Ripple Labs, Christian Larsen, and Brad Garlinghouse violated securities laws with the sale of XRP coins beginning in 2013:
“From at least 2013 to the present, Defendants sold more than 14.6 billion units of a value of digital asset called ‘XRP’, in exchange for cash or other consideration worth more than $ 1.38 billion USD (‘ USD ‘), to finance the operations of Ripple and Larsen and Garlinghouse “.
The lawsuit claims that Ripple received legal advice as early as 2012 that its currency could represent an offer of value and chose to ignore it.. From a financial perspective, the complaint notes, the strategy worked, and Ripple raised “at least $ 1.38 billion” in the following years.
The filing alleges that Larsen and Garlinghouse benefited to the tune of $ 600 million from their unrecorded XRP sales. The SEC notes that these sales took place while Garlinghouse repeatedly claimed he was “very long” in XRP, suggesting that investors were being misled when Garlinghouse and Larsen cashed:
“Ripple created such an information vacuum that Ripple and the two people with the most control over it, Larsen and Garlinghouse, were able to sell XRP in a market that possessed only the information that Defendants chose to share about Ripple and XRP.”
The complaint describes an instance in 2015 in which one of Ripple’s market makers, whom it also paid in XRP, temporarily halted the sale of Garlinghouse and Larsen XRP holdings because the price of the coin was already falling.
According to the presentation, Larsen ordered the market maker to “keep [las ventas] paused for now “y”[espere hasta que [el] market has recovered from this error “.
A similar incident from 2016 described how the defendants were forced to adjust its net sales targets in hopes of being able to “stabilize and / or increase” the price of the distressed XRP coin. Larsen and Garlinghouse agreed to lower the rate of their XRP sales, but Garlinghouse added that it was “slightly inclined to be more aggressive when we do this.”
The SEC notes that the “information asymmetry” created by the defendants still exists, allowing them to continue selling XRP with “substantial risk to investors”.
Ripple’s General Counsel, Stuart alderoty, said was disappointed by the SEC’s belated attempt to take action against Ripple Labs after years of inaction. On February 18, Alderoty said that the latest amended complaint did not raise anything new and reiterated that only one legal issue remains to be resolved. Alderoty tweeted:
“As many of you have seen, the SEC filed an amended complaint today. The only legal claim remains: did certain XRP distributions constitute an investment contract? Disappointingly, the SEC needed to try to ‘fix’ their complaint after waiting years to file it in the first place … “
In 2020, the former chairman of the Commodities Futures Trading Commission, Chris giancarlo, argued that XRP should not be considered a securities offering, arguing that it did not meet the criteria established in Howey’s test.
Giancarlo had previously stated that neither Bitcoin (BTC) nor Ether (ETH) represented security offerings, earning him the nickname “Crypto Dad” in the crypto space.
Nevertheless, a conflict of interest could be at stake. As Forbes reported at the time, the law firm Giancarlo represented, Willkie Farr & Gallagher LLP, was also acting as Ripple’s legal advisor. Giancarlo’s assessment that XRP is not a security was also “based on certain factual information provided by Ripple,” the article read..