In a complaint filed on Feb. 18, the United States Securities and Exchange Commission alleged that Ripple Labs executives Bradley Garlinghouse and Christian Larsen manipulated XRP price by either increasing or decreasing their coin sales depending on market conditions.
Ripple executives misled investors and manipulated the XRP coin price by creating an information vacuum
Specifically, the SEC retains its stance that Ripple Labs, Christian Larsen, and Brad Garlinghouse violated securities laws by selling XRP coins starting in 2013.
The complaint stated:
“From at least 2013 through the present, Defendants sold over 14.6 billion units of a digital asset security called ‘XRP,’ in return for cash or other consideration worth over $ 1.38 billion US Dollars (‘USD’), to fund Ripple’s operations and enrich Larsen and Garlinghouse.”
According to the SEC, Ripple received legal advice as early as 2012 that its coin could represent a secure service, and it chose to ignore it. From a financial perspective, the complaint notes, the strategy has worked, with Ripple continuing to raise at least $ 1.38 billion over the following years.
The filing alleges that Larsen and Garlinghouse subsequently made $ 600 million from the sale of unregistered XRP. The SEC noted that these purchases occurred while Garlinghouse repeatedly insisted that he was “very long” on XRP – showing that investors were being cheated when Garlinghouse and Larsen pulled out cash.
He stated:
“Ripple created an information vacuum such that Ripple and the two insiders with the most control over it — Larsen and Garlinghouse — could sell XRP into a market that possessed only the information Defendants chose to share about Ripple and XRP.”
The complaint describes a case in 2015 when one of Ripple’s market makers, who also paid with XRP, temporarily halted the sale of XRP stakes by Garlinghouse and Larsen because the XRP price fell.
The SEC notes that the information asymmetry created by the defendants still exists, allowing them to continue selling off XRP at substantial risk to investors.
A similar incident from 2016 described how the accused were required to adjust their net sales goals in the hope that they can stabilize or increase XRP’s price. Larsen and Garlinghouse have agreed to reduce their XRP selling rate, but Garlinghouse has the opposite view.
The SEC notes that the information asymmetry generated by the defendants still exists, allowing them to continue to sell off XRP with significant risk to investors.
General Counsel at Ripple Stuart Alderoty said:
“I was disappointed by the SEC’s late attempt to bring action against Ripple Labs after years of inaction.”
On Feb. 18, Alderoty said the latest amend complaint raised nothing new, reiterating that only one legal question remains to be settled.
On February 18, Alderoty said the latest amendment complaint did not introduce anything new, reiterating that only one legal question 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 distributions of XRP constitute an investment contract? Disappointing the SEC needed to try to “fix” their complaint after waiting years to bring it in the first place…
— Stuart Alderoty (@s_alderoty) February 18, 2021
In 2020, former Commodity Futures Trading Commission Chairman Chris Giancarlo argued that XRP should not be considered a secure service, arguing that it doesn’t match the criteria given in the Howey test.
Giancarlo has previously stated that neither Bitcoin nor ETH represents securities services, giving him the nickname “Crypto Dad” in the cryptocurrency market.
However, conflicts of interest may arise. As reported by Forbes at the time, the law firm Giancarlo represented – Willkie Farr & Gallagher LLP – was also acting as legal advisor to Ripple. Giancarlo’s assessment that XRP is not secure is also based on certain facts provided by Ripple.
You can see the XRP price here.
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