A lawsuit alleges that Ripple sold its XRP tokens to the public for a “never-ending initial coin offering”.
Ripple, the financial tech startup has been sued by one of their investor who alleges that the company violated state and federal laws by offering unregistered securities to retail investors. The lawsuit seeks class-action status and was filed in the San Francisco County Superior Court by the investor, Ryan Coffey.
Ripple XRP token which is the third-largest cryptocurrency in terms of the market cap, created billions of coins “out of thin air” and sold them to the public in “what is essentially a never-ending initial coin offering” ICO, the lawsuit alleges.
Ryan Coffey is now seeking damages “on behalf of all investors who purchased Ripple tokens (“XRP”) issued and sold by Defendants,” naming Ripple, XRP II (the company’s registered and licensed MSB), CEO Brad Garlinghouse, and 10 unnamed parties.
Meanwhile, it must be noted that the U.S. federal law requires companies selling securities to register with the Securities and Exchange Commission (SEC). Whether a financial instrument qualifies as a security depends on the Howey test, a standard derived from a 1946 Supreme Court case.
CoinDesk reached out to Ripple’s head of corporate communications, Tom Channick and here’s what he has to say about it;
“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. 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.”
Attorney James Taylor-Copeland, who’s representing Coffey, has not responded on the matter yet. Coffey seeks unspecified damages as well as a declaration that Ripple and its CEO, Bradley Garlinghouse, sold unregistered securities.