Ripple CEO Brad Garlinghouse told Fortune Magazine that he expected the SEC to sue the company immediately for selling unlicensed securities. XRP is the third-largest cryptocurrency by market cap.
He believed that the SEC will name him and co-founder Chris Larsen as co-defendants in the lawsuit, which he expected to be brought soon. XRP’s price dropped over 13% last Monday, lower than 50 cents.
Garlinghouse stated to the Wall Street Journal that a representative of the Commission stated that Ripple will be filing its lawsuit in federal district court soon.
In a statement, the CEO mentioned that Ripple intends to fight back: “The SEC is fundamentally wrong as a matter of law and fact. XRP is a currency and does not have to be registered as an investment contract. The Justice Department and the Treasury’s FinCEN already determined that XRP is a virtual currency in 2015 and other G20 regulators have done the same. No other country has classified XRP as a security.”
XRP was issued in 2012. The SEC believed that XRP is a security and should have been registered with the Commission as what it is. Ripple holds 6.4B XRP. It sells the cryptocurrency to the public from a security account that holds another 48B.
For many years now, the issue of whether XRP is a currency or security had been argued among crypto enthusiasts. “This is an attack on all of crypto. While other countries are embracing the future, the SEC continues to lash out in fear,” tweeted Michael Arrington, the founder of Arrington XRP Capital.
Garlinghouse said that Ripple is preparing to fight the lawsuit. “I think we have to stand up for all of the cryptos—and not let the SEC bully the entire industry,” he said, adding “We’re going to be on the right side of history.”
A ripple statement issued after the news broke said in a part: “The SEC has permitted XRP to function as a currency for over eight years, and we question the motivation for bringing this action just days before the change in administration. Instead of providing a clear regulatory framework for crypto in the U.S., [SEC Chairman] Jay Clayton inexplicably decided to sue Ripple–leaving the actual legal work to the next Administration.”
“This complaint is wrong as a matter of law,” said Michael Kellogg, attorney for Ripple’s counsel, Kellogg, Hansen, Todd, Figel & Frederick. “Other major branches of the U.S. government, including the Justice Department and the Treasury Department’s FinCen, have already determined that XRP is a currency. Transactions in XRP thus fall outside the scope of the federal securities laws. This is not the first time the SEC has tried to go beyond its statutory authority. The courts have corrected it before and will do so again.”
An SEC lawsuit will be another parting shot at the crypto industry from the ongoing Trump Administration. Steve Mnuchin is pushing a proposal by FinCEN that will regulate digital currencies; the rule will impose restrictions on banks and other “money services business” concerning so-called “unhosted” crypto wallets.