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12 December 2019

SEC Guidance Gives Ammo to Lawsuit Claiming XRP Is Unregistered Security

SEC Guidance Gives Ammo to Lawsuit Claiming XRP Is Unregistered Security

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Investors in the cryptocurrency XRP have filed a new complaint against Ripple that marshals the Securities and Exchange Commission’s own words to argue that the startup illegally sold unregistered securities.

“That filing will be the first time in the already-long history of this litigation that Ripple will substantively respond to the allegations around XRP,” said Jake Chervinsky, general counsel at crypto lending startup Compound Finance.

The new amended complaint lays out “a strong case against Ripple,” said Chervinsky, noting that Susman Godfrey is “one of the best plaintiff’s law firms in the U.S.” In particular, he highlighted that the complaint claims XRP is a security under both federal and California state law.

Rettig agreed, telling CoinDesk that “this is the first time we have seen the SEC’s Framework applied in a case in federal court.” She added:.

(The suit also notes that Digital Currency Group, which holds a stake in Ripple, is also the parent company of CoinDesk, and cites a 2017 article on this website reporting that XRP’s price had risen above $1 for the first time ever as “one of many instances in which Ripple would promote XRP price movements.” For the record: CoinDesk operates independently from the parent company, working in separate offices and maintaining strict policies on editorial independence and transparency.)

Beyond simply promoting XRP, the complaint hints that Ripple may have gone as far as to mislead the general public about which of its various products were being adopted

“For the first time, the plaintiffs now claim that Ripple violated California’s false advertising and unfair competition laws by making fraudulent statements about the genesis, circulating supply, and adoption of XRP,” he said

The fact that this complaint is in federal court may have helped the plaintiffs

More significantly, the plaintiffs want the court to declare that XRP is a security, which could have an impact on Ripple’s ability to continue selling XRP from its reserves, as well as potentially limit who can acquire the token

Other prayers for relief include the plaintiffs wanting Ripple to pay for all legal fees and have the court award any other damages that might be warranted

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