SEC Sues Ripple and Executives Over $1.3 Billion in Alleged Unregistered Securities Sales
Washington, D.C., December 22, 2020 – The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple Labs Inc. and two of its top executives, accusing them of raising $1.3 billion through an unregistered digital asset securities offering.
According to the SEC’s complaint, Ripple, along with its co-founder and former CEO Christian Larsen, and current CEO Bradley Garlinghouse, conducted an ongoing securities sale starting in 2013 by offering XRP to investors in the U.S. and globally without proper registration. The SEC also alleges that Ripple distributed billions of XRP in exchange for non-cash services like labor and market-making. Additionally, the complaint claims that Larsen and Garlinghouse personally sold XRP worth approximately $600 million without registration or an applicable exemption, violating federal securities laws.
SEC’s Position on the Case
Companies seeking the benefits of a public offering—including access to retail investors, broad distribution, and secondary market trading—must comply with federal securities regulations, unless they qualify for an exemption.
Stephanie Avakian, Director of the SEC’s Enforcement Division, stated:
“We allege that Ripple, Larsen, and Garlinghouse conducted an unregistered sale of billions of XRP to retail investors, depriving them of critical disclosures about XRP, Ripple’s business, and other fundamental investor protections central to our public market system.”
Marc P. Berger, Deputy Director of the SEC’s Enforcement Division, added:
“The registration requirements exist to ensure that investors—especially retail investors—have access to important details about a company’s financial condition and operations. Here, we allege that Ripple and its executives ignored these requirements for years, leaving investors without the disclosures they were legally entitled to.”
Legal Action and Consequences
The SEC has filed its case in federal court in Manhattan, charging Ripple and its executives with violating the Securities Act of 1933. The agency is seeking injunctive relief, disgorgement of profits with prejudgment interest, and civil penalties.
The SEC’s investigation was conducted by members of its Cyber Unit, including Daphna A. Waxman, Jon A. Daniels, and John O. Enright, under the supervision of Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. The litigation will be handled by Jorge G. Tenreiro, Dugan Bliss, Ms. Waxman, and Mr. Daniels, with oversight from Preethi Krishnamurthy.
This lawsuit marks a significant moment for the crypto industry, as it could set a precedent for how digital assets are classified and regulated under U.S. securities laws.