The U.S. Securities and Exchange Commission (SEC) said it has filed an action against blockchain firm Ripple Labs, Inc. and two of its executives for allegedly raising more than $1.3 billion through an unregistered, ongoing digital asset securities offering. The executives named in the lawsuit are CEO Brad Garlinghouse and Co-Founder Chris Larsen.
The SEC's complaint, filed in the federal district court in Manhattan, charges defendants with violating the registration provisions of the Securities Act of 1933, and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.
Ripple is the issuer of the world's third-largest cryptocurrency known as XRP. Unlike Bitcoin and Ethereum which can be mined by anyone, XRP is created and nearly fully owned by Ripple Labs and it releases a bit of the 100 billion units it created, into circulation every year.
The value of XRP crashed more than 40 percent following the news of SEC's lawsuit. XRP's price now stands at $0.29, according to CoinMarketCap. Ripple was recently valued at $10 billion following a $200 million funding round.
According to the complaint, the SEC alleges that Ripple raised funds, beginning in 2013, through the sale of digital assets known as XRP in an unregistered securities offering to investors in the U.S. and worldwide.
The SEC adds that XRP is a security rather than a currency and hence the issuer should have sought prior approval of the US securities regulator ahead of its launch.
Responding to the complaint, Garlinghouse argued in a blog post that the US Treasury Department's FinCen and US Department of Justice have long ago concluded that XRP is a currency. Even many other G20 governments call XRP a currency. He added that "we will aggressively fight and prove our case."
Garlinghouse wrote "we will aggressively fight and prove our case" and also added that "With this behavior, the SEC is engaged in an all-out attack on the crypto industry."
The SEC alleges that Ripple, Larsen, and Garlinghouse raised capital to finance the company's business through this offering, but failed to register the ongoing offer and sale of billions of XRP to retail investors. It also charged Larsen and Garlinghouse of effecting personal unregistered sales of XRP totaling approximately $600 million.
The complaint alleges that the defendants failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of the federal securities laws.
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