Ripple, the startup behind world’s third largest cryptocurrency, XRP has come under fire after an aggravated investor filed a class-action lawsuit against Ripple Labs and CEO, Brad Garlinghouse, alleging that the company runs a scam to raise money via unregistered XRP tokens.
The plaintiff, Ryan Coffey, filed the lawsuit in The Superior Court of California last week, according to a Bloomberg report.
— Bloomberg Crypto (@crypto) 4 May 2018
The report said that Ryan alleged that Ripple violated both federal and state-level laws by selling its tokens to the broader public. He says that the company created millions of (unregistered) XRP tokens “out of thin air” and made hundreds and millions of dollars by selling them to the public in a “essentially a never-ending initial coin offering.”
According to Coffey, Ripple offered unregistered securities, hence violating the U.S Securities Act as well as California-specific law. Coffey is seeking unspecified damages and wants the lawsuit to move forward on behalf of all the XRP investors.
The lawsuit claims:
“… defendants have since earned massive profits by quietly selling off this XRP to the general public … in order to increase demand for XRP, and thereby increase the profits it can drive by selling XRP, Ripple Labs has consistently portrayed XRP as a good investment, relayed optimistic price predictions, and comflated Ripple Lab’s enterprise customers with usage of XRP.”
Coffey claims to have bought 650 XRP for $2.06 each in January 2018, and sold them a few weeks later for a loss of about 32 percent.
“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,” said Ripple spokesperson, Tom Channick. “ 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.”
Coffey claimed in the suit:
“XRP is a security. Defendants themselves have recognized that XRP investors have a reasonable expectation of profit, and publicly touted XRP’s price performance on numerous occasions.”
Bloomberg also reported that the Securities and Exchange Commission (SEC) warned in July that companies raising funds through Initial Coin Offerings (ICO) have to meet the securities law. SEC has already subpoenaed companies and individuals that ran ICOs that were afoul of the security regulations.