Trump Administration Obliterates Biggest Bitcoin Competitor with SEC Lawsuit
The Securities and Exchange Commission has filed suit against executives overseeing bitcoin’s biggest competitor, obliterating the currency’s price and setting the stage for regulatory uncertainty that will not be resolved until the incoming administration takes office.
The complaint, which names Ripple CEO Bradley Garlinghouse and former CEO and co-founder Christian Larsen, alleges the company’s XRP token constituted an unregistered securities offering, and that the two engaged in insider trading worth $1.3 billion.
“We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system,” Stephanie Avakian, director of the SEC’s Enforcement Division, said in a statement.
According to the complaint, Garlinghouse falsely told traders that he was “very long” in the currency — meaning he was not selling it — even as he Larsen “personally profited by approximately $600 million” from their trades.
As of Wednesday afternoon, the suit had caused XRP’s market capitalization to plummet by nearly 50 percent, to $12.6 billion from $21.6 billion earlier in the week.
The move came just a day before SEC Chairman Jay Clayton’s announcement Wednesday afternoon that he would be stepping down from his post at the end of the day, which means the agency’s handling of the lawsuit beyond the initial filing will be handled by President-elect Joe Biden’s nominee to serve as Clayton’s successor. Biden has not said who he will name to lead the agency.
Ripple, which founded in 2012, is privately valued at around $10 billion, and has been one of the largest companies seeking to create a digital currency for financial institutions to use. With backing from venture capital firms including Andreessen Horowitz and Peter Thiel’s Founders Fund, Ripple forged partnerships over the last several years with Bank of America and PNC, among others.
The SEC said in 2012 that digital currencies including bitcoin and ether — the second-largest cryptocurrency by market capitalization as of Wednesday, at $15.4 billion — do not constitute securities because of their lack of central oversight.
Garlinghouse argued in a Wednesday interview on CNBC that Ripple’s XRP should be treated similarly.
“XRP … is almost undistinguishable from ether in terms of its decentralization, its breadth of activity,” Garlinghouse said. “What’s amazing to me is that not a single other country anywhere has looked at XRP as a security. You’ve had countries like the [United Kingdom], and Japan, and Singapore, all come out and say things that make it clear XRP is a currency.”
He added, “The SEC, in my opinion … taking this position now that is, frankly, one foot out the door — a little bit incredible to kind of take a position after eight years.”
Watch above via CNBC.
