Ripple is fighting back against a Securities and Exchange Commission lawsuit that accused the company of selling an unregistered security and, along with the company’s founders, of profiting from undisclosed sales of it.
Ripple is a San Francisco vendor of cross-border software and issuer of the digital asset XRP. In an answer filed in the U.S. District Court for the Southern District of New York, Ripple said XRP isn’t an investment contract and instead functions as a virtual currency that doesn't require a registration statement.
“It is not a security, and the SEC has no authority to regulate it as one,” according to the answer.
Stuart Alderoty, chief counsel at Ripple, was critical of the murkiness of U.S. securities law in an interview Friday after the answer was filed.
“What we have been asking for is regulatory clarity here in the U.S., and it's what we don't have,” Alderoty said. “We have it in Singapore. We have it in Switzerland. We have it in the U.K. The fact that we are still in a place in the U.S. where we’re left to guess what may be considered good and what may be considered not good and having regulators like the SEC pick winners and losers is just not a sustainable framework for an industry to operate in.”
Chris Larsen, Ripple’s initial CEO and current chairman, and Brad Garlinghouse, its current chief executive, made $600 million in profits from unregistered sales of XRP, according to the lawsuit. Garlinghouse did so while repeatedly saying publicly that he was “very long” on XRP, the complaint said.
Ripple’s answer acknowledged that Garlinghouse and Larsen have sold some XRP but didn’t specify how much. It said that Ripple has sold XRP in exchange for fiat or other currencies but says it has also raised money in other ways.
“I don't think it's fair to say that the company is being funded by our monetization of XRP,” Alderoty said. “We have real shareholders, we've done three funding rounds. If you want to own stock in Ripple, you buy our equity and that will give you a right, title and interest in the future and the profits of Ripple.”
