A Security By Any Other Name Would Smell As Sweet
“A rose by any other name would smell as sweet.” Like the Shakespearean rose, Ripple Labs faces another claim that its digital asset XRP is a security in a new federal lawsuit in California. The suit filed by Bitcoin Manipulation Abatement LLC, claims Ripple’s XRP is an illegally offered security. The plaintiff alleges that Ripple violated federal and California state law by offering and selling unregistered securities without a registration or an exemption from registration and that Ripple engaged in false advertising and unfair competition. Ripple is yet another cautionary tale of an issuer of a digital asset that was used to raise capital from purchasers in a manner that made it look like a security.
The plaintiff claims Ripple raised more than a billion dollars through sales of XRP—an unregistered security—to retail investors in violation of the registration provisions of federal and California securities laws with the primary purpose to enrich Ripple’s executives, directors, founders, and affiliates. Additionally, the plaintiff alleges that in order to drive demand for and increase profits from the sale of XRP, Ripple Defendants made false and misleading statements regarding XRP. The plaintiff claims XRP is a security because the purchasers thereof were conditioned to expect and in fact expected to profit from Ripple ‘s success. Sale of XRP by Ripple was an offer and sale of securities because Ripple marketed XRP in way to lead investors to believe XRP would increase in value and become worth more than the fiat and/or virtual currencies invested. The plaintiff noted Ripple explicitly referred to purchasers of XRP as “investors” and repeatedly stressed their intention to keep the value of XRP stable and increasing, and that XRP would be a long-term growth asset.