Cryptocurrencies have been introduced to many people as the latest form of digital currencies. While this new type of currency has numerous benefits, the world of digital coins and tokens is not without its downsides. For instance, many people had to part with sizable chunks of their investment due to the XRP lawsuit. As a result, many people hurriedly removed their liquidity from the token and crashed its value. So, what was the cause of the lawsuit? Who were those affected? Is there any remedy for restoring the fortunes of the XRP token? Keep reading to find out.

SEC filed a suit against XRP for offering unregistered financial securities

Towards the end of last year, the Securities and Exchange Commission slammed Ripple Labs. Inc. and two of its prominent executives with a lawsuit. According to reports, these executives are major security holders of the token. The case was made because XRP allegedly raised more than $1.3 billion through a digital asset offering. Their actions had threatened the investments of thousands of people who had invested a stake in the digital coin.

The SEC complaint pointed out that Christian Larsen, the company’s co-founder, former CEO, and executive chairman of the board of directors, and Bradley Garlinghouse, its present CEO, raised capital to finance their business. But the capital they raised was done through unacceptable means. 

Additionally, further details revealed that these two executives had raised money by selling digital assets known as XRP in an illegal securities offering. The assets were purchased by people in different parts of the world, including the United States. Ripple Labs. Inc also facilitated the distribution of XRP tokens for cashless assistance or help, such as labor services. This complaint also stated that the two executives involved in the illegal securities offerings also facilitated an unregistered sale of XRP that cost a total sum of about $600 million. Both executives carried out the transactions illegally, and the company failed to register any sales or satisfy any exemption rules. Their actions were a complete violation of the federal securities law.

The law clearly states that anyone who wants to leverage the advantages that public offerings offer, such as a subsidiary trading market, deals with retail investors, and wide distribution of tokens, must adhere to the regulations of the federal securities law.

In other words, every type of public offering must have due registration unless the company has been specially granted exemptions. The failure to report the sales of billions of dollars worth of XRP to retail investors deprived the general public of full disclosure of Ripple and their token (XRP). By failing to comply with the securities law, they will also not be able to provide retail investors with the protection our public market system offers.

The registration requirements for the public offering are designed to ensure that potential investors – large scale or retail – can receive vital information about the issuer’s financial conditions and business operations. Unfortunately, ripple and its executives failed to satisfy these core investment requirements and deprived investors of the necessary information to act in the market. 

Ripple’s response to the SEC lawsuit

Ripple has issued an unlikely response to the SEC, and there are clear indications that things may swing in their favor. Ripple has been locked in a bitter court battle with the SEC for many months now. In response to the lawsuit against them, Ripple has made a shocking recommendation to Washington policymakers. 

According to the Ripple management, policymakers should limit the power given to the regulator in policing cryptocurrencies. They further accused the SEC of picking the cryptocurrencies to sanction and take regulatory actions against.

XRP has come a long way from where it used to be. Before the SEC lawsuit, XRP was the third-largest cryptocurrency globally after Bitcoin and Ethereum. However, the token quickly lost more than 60% of its value within the first week of the lawsuit. The losses were substantial because reputable exchanges such as Coinbase and Binance began to delist XRP. In addition, Ripple argued that Bitcoin, Ethereum, and other cryptocurrencies were exempt from similar regulations.

By requesting a reduction in the regulatory power of the SEC, Ripple may have laid out the groundwork for a new framework that will make the SEC less significant. Ripple’s call for a change in the regulatory framework may seem a little too late to save the token’s value, but it will provide a much-needed change to keep all cryptocurrencies in check.

What Happens to Ripple if They Win the Lawsuit?

Ripple and the SEC have been asked to rebrief the court with new arguments that will support each party’s case. So, what’s the way forward for Ripple if they win the case in court?

For Ripple to win this lawsuit, they have to convince the court that their actions were not aimed at harming or taking advantage of retail investors. Additionally, Ripple will need to get a favorable ruling on Fair Notice. This statement means that if the judge strikes out the SEC’s motion on Fair Notice Defence, the regulatory body may be subject to massive settlement with profound implications. It would be one of the largest settlements in SEC’s history.

Furthermore, if the settlement also includes a statement that says that ongoing XRP tokens are securities, the cryptocurrency will be relisted. As a result, an XRP bull run may follow, which may take the token to an even higher price than before the lawsuit.

Ripple SEC Lawsuit: Where Experts Believe the Chips Will Fall

Experts have varying opinions on Ripple’s lawsuit with the SEC. Ripple has also made a case for a supplemental briefing about the deliberative process privilege. While many experts are not enthusiastic about the legal proceedings between SEC and Ripple, others strongly believe that the global payment giant will scale through. If Ripple win’s this case, a bullish run is expected from XRP.