A group of XRP investors is suing the U.S. Securities and Exchange Commission, demanding that the agency declare their holdings are not securities.
The lawsuit, filed in Delaware federal court, follows the SEC’s Dec. 22 enforcement action against Ripple, which calls XRP a security and accuses the international payments firm and two top executives of a seven-year-long, ongoing illegal sale of unregistered securities. Ripple has promised to vigorously defend itself.
Seeking class action status, the petitioners are also demanding damages from the agency. They have asked the court to force the SEC to place any funds it receives from its own lawsuit against Ripple and two top executives in a trust for individual retail investors harmed by the agency’s action.
The market price of XRP dropped by more than 50% shortly after the SEC’s lawsuit was filed, dropping below $0.20 before rebounding slightly to its current $0.23.
The suit does not claim that XRP sold by Ripple was never a security, but argues that “[t]oday’s XRP IS NOT the XRP of 2013 to 2015.” It cites dozens of uses cases that it says makes XRP a non-security, from being classified a non-security by other international regulators such as Japan’s Financial Services Agency and the UK’s Financial Conduct Authority to its use by Ripple’s banking clients as a means of making international payments. The suit also points to smaller uses like Japanese financial firm and Ripple partner SBI’s use of XRP as a payroll currency for its e-sports team.
Jay Clayton’s motives
The lawsuit goes hardest after the recently departed SEC chairman, Jay Clayton, arguing that he failed in his fiduciary duty to “protect investors, promote fairness and share information about companies…to help investors make informed decisions and invest with confidence.”
Instead of doing this, the lawsuit said, Clayton “knowingly and intentionally caused multi- billion-dollar losses to innocent investors who have purchased, exchanged, received and/or acquired the Digital Asset XRP.”
Arguing that Clayton acted with “improper motive and the specific intent to cause irreparable harm,” the suit accuses him of being “politically and/or personally motivated to cause great harm to Ripple, XRP and/or to the cryptocurrency industry, with complete and utter disregard for the thousands of investors that Clayton swore to protect.”
Noting that “Clayton chose to file, quite possibly, the most significant SEC enforcement action in 76 years as he was walking out the door after allowing the Digital Asset XRP be sold for SEVEN years,” the suit speculates that he wanted it filed before a new administration arrived and possibly squashed it. It said:
“Maybe the mere filing of the Complaint was the end game for Clayton.”