Cryptocurrency Firm Ripple Is Sued by S.E.C.

The Securities and Exchange Commission sued the company behind one of the most valuable cryptocurrencies on Tuesday, raising fundamental questions about the token’s viability.

The SEC accused San Francisco-based Ripple of selling unregistered securities when it was selling the XRP digital token to investors around the world.

The lawsuit, which was filed in federal court in New York, also names Brad Garlinghouse, the current CEO of Ripple, and its former CEO Chris Larsen. The agency accused both men of selling the XRP token in order to get rich, even though they knew it was barely actually used.

“Ripple has been selling XRP widely in the market, especially to people who have had no use for XRP, as Ripple has described such potential” uses “and largely when there were no such uses at all,” the complaint said.

Ripple had marketed XRP as a new type of currency that would make it easier for banks and financial institutions to send money around the world.

However, the lawsuit states that financial firms that have tried XRP have told Ripple that it is more expensive than the alternatives available. Some companies continued to use XRP because Ripple paid them to do it, the lawsuit said.

XRP, like Bitcoin and many other cryptocurrencies, has seen rapid growth in value recently. On Monday, XRP tokens were valued at around US $ 22 billion, making them the third most important cryptocurrency after Bitcoin and Ether. The mark had turned Mr. Larsen and Mr. Garlinghouse into billionaires.

But within hours of filing the lawsuit, the value of the outstanding Ripple had fallen by over $ 3 billion.

The lawsuit alleges that Mr Larsen and Mr Garlinghouse previously sold nearly two billion XRP units that the company gave them to safeguard their assets.

XRP, which has been trading since 2012, has long been haunted by questions of how it differs from other cryptocurrencies. Unlike Bitcoin, which was published over a decentralized computer network, XRP tokens were created and distributed by the founders of Ripple and the company they founded.

The lawsuit argues that unlike Bitcoin, XRP should be classified as security rather than currency. The lawsuit alleges that because Ripple did not register XRP as a security, the company violated laws against the sale of unregistered securities.

If the SEC wins its case and determines that XRP is a security, its use as a currency becomes essentially impossible.

Anticipating the lawsuit, Mr Garlinghouse said Monday that Ripple would fight it. “It’s frankly absurd and not actually grounded,” he said.

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