Investor Sues Ripple Over ‘Never-Ending ICO’
A class-action lawsuit argues the cryptocurrency firm sold coins produced ‘out of thin air’
An investor has filed a class action lawsuit against Ripple Labs Inc., the company that controls the world’s third-largest cryptocurrency Ripple (XRP), according to a court document dated May 3.
The lawsuit, which also names as defendants Ripple CEO Brad Garlinghouse and the group’s subsidiary XRP II, argues that the company violated both federal and state-level securities regulations, creating billions of coins “out of thin air” and then profiting by selling them to the public in “what is essentially a never-ending Initial Coin Offering (ICO).”
According to the complaint, the plaintiff, an individual named Ryan Coffey, purchased 650 XRP on January 5 and sold it on January 18 this year, ultimately yielding a loss of USD 551.89, or around 32 percent. Coffey claims he did not expect to lose money on his investment due to the promotional practices of Ripple Labs.
“In order to increase demand for XRP, and thereby increase the profits it can derive by selling XRP, Ripple Labs has consistently portrayed XRP as a good investment, relayed optimistic price predictions, and conflated Ripple Labs’ enterprise customers with usage of XRP,” the suit states.
Coffey is seeking to proceed on behalf of all XRP purchasers, who are “so numerous that joinder of all members is impracticable.” He is seeking payment for attorney fees, costs of the suit, and punitive damages. In addition, the investor requests that the court declares the sale of XRP an unregistered securities sale and prevent the defendants from further violating securities laws.
“We’ve seen the lawyer’s tweet about a recently filed lawsuit but have not been served. Like any civil proceeding, we’ll assess the merit or lack of merit to the allegations at the appropriate time,” Ripple spokesman Tom Channick said in an emailed statement to Bloomberg “Whether or not XRP is a security is for the SEC to decide. We continue to believe XRP should not be classified as a security.”
The Securities and Exchange Commission (SEC) has opened probes into dozens of ICOs to determine whether they constitute unregistered securities offerings.
At the end of April, former Goldman Sachs partner and US regulator Gary Gensler said that he believes both XRP and Ethereum (ETH) should be considered securities under US law due to their centralized distribution model. According to Gensler, “there is a strong case for both of them — but particularly Ripple — that they are noncompliant securities.”