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Jilted investor hits the world’s third-biggest cryptocurrency with a wild lawsuit

Ripple XRP price, lawsuit SEC

Cryptocurrencies, the savior of the world’s financial system or a “noxious poison,” depending on who you talk to, are woefully good targets for fraud. The currencies themselves are so new and volatile that they’re extremely vulnerable to pump-and-dump schemes, while the “initial coin offerings” that have sprung up thanks to Bitcoin’s popularity have such a low success rate that you’d be better playing slots.

But the bigger a currency gets, the more money becomes involved, and the bigger the stakes get. Ripple XRP is the third-biggest cryptocurrency by market cap in the world, and with $35 billion in market cap, it’s no surprise that the currency and its controlling firm, Ripple Labs, courts controversey. The company was just hit with a class-action lawsuit alleging that it raised hundreds of millions of dollars through a “never-ending ICO” that violated securities law and involved attempts to bribe a major crypto exchange.

Ripple Labs created billions of coins “out of thin air” and then profited by selling them to the public in “what is essentially a never-ending initial coin offering,” the class-action suit filed by Ripple investor Ryan Coffey claims. He’s seeking unspecified damages, as well as an acknowledgement from the company that it sold unregistered securities, something that could challenge the company’s continued existence.

“We’ve seen the lawyer’s tweet about a recently filed lawsuit but have not been served,” Ripple spokesperson Tom Channick told Coindesk. “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.”

Whether or not cryptocurrencies are classified as a security is a huge controversy within the community currently. Most investors and evangelists believe that tokens are not securities, but the SEC has strongly hinted otherwise. In a statement issued in March, the SEC took aim at online crypto exchanges, and also hinted that the currencies themselves should be regulated as securities:

Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings (“ICOs”).  The platforms often claim to give investors the ability to quickly buy and sell digital assets.  Many of these platforms bring buyers and sellers together in one place and offer investors access to automated systems that display priced orders, execute trades, and provide transaction data.

A number of these platforms provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws.  If a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.  The federal regulatory framework governing registered national securities exchanges and exempt markets is designed to protect investors and prevent against fraudulent and manipulative trading practices.

Ripple’s price has not yet been seriously effected by the lawsuit.