Uphold CEO: SEC’s Ripple lawsuit costing ‘completely innocent folks’ billions

With non-Ripple XRP holders down $10 billion, the Securities and Exchange Commission is doing more damage to small investors than it is to the company, said Uphold CEO J.P. Thieriot

The CEO of an influential trading app has come to the defense of XRP holders, who are being crushed by the SEC’s sudden decision to sue Ripple. In a powerful 8-part tweetstorm, J.P Thieriot, CEO of Uphold, tweeted out a strongly worded promise to maintain support for XRP, saying the SEC lawsuit will stifle innovation, threaten the U.S.’s position as a leader in the cryptocurrency industry, and most of all, will harm thousands upon thousands of innocent investors.

Ripple may be innocent until proven guilty, but that hasn’t stopped XRP from tanking in the wake of the U.S. Securities and Exchange Commission’s lawsuit characterizing the token as an unregistered security.

Aside from threatening Ripple—the SEC wants to claw back the entire $1.34 billion the company and its executives made selling XRP over the last seven years—the agency’s lawsuit has crushed many small investors who bought the fourth-largest cryptocurrency.

The price of XRP promptly cratered by 50%, to just over $0.20, following the SEC’s lawsuit, taking the token’s market capitalization from $31 billion on Nov. 23 to $10.7 billion on Jan. 5.

While Ripple owns 45 billion of the 100 billion XRP tokens in existence, that still leaves crypto investors, many of them small retail buyers, stuck with roughly half of those losses—more than $10 billion.

Harm reduction

While all but one of the major U.S.-based cryptocurrency exchanges—Kraken, which has maintained radio silence—responded to the enforcement action by suspending or delisting XRP, the CEO of one trading platform has come out to say he will keep XRP on the books while Ripple fights the lawsuit.

In a phone interview with Modern Consensus, Thieriot was clear that he considers the SEC, a “widely respected” agency that “takes its role very seriously.”

He said he thought some of the charges the SEC has leveled against Ripple CEO Brad Garlinghouse and executive chairman Chris Larsen’s personal sale of what the agency said was $600 million in XRP may have merit. 

However, these are purely civil accusations — there are no accusations of fraud or misrepresentation.

Regardless, “none of that, in our view, makes XRP more or less of a security,” Theriot said. He added:

“In this case it would seem that in pursuit of some individuals for what may well have been a violation—but basically for an amount totaling $1.34 billion—you invoke billions of dollars of losses for completely innocent folks doesn’t seem to be in pursuit of protecting, at least those consumers.”

Nor are they the only ones harmed. The leading U.S. exchange Coinbase is now facing a potential class-action lawsuit for selling XRP, which the lawyers claim it knew was a security.

Beyond that, Thieriot tweeted, the SEC’s lawsuit “threatens to harm participants in similar projects, as well as virtually assure that the U.S. will not be home to Silicon Valley II,” which, he added “by rights the U.S.’s to own.”

As for his decision to maintain Uphold’s XRP listing, Thieriot told Modern Consensus, “Our stance was, look, this is an allegation… [and] from our point of view, it just didn’t seem fair or measured with respect to the well-being of the consumers we’re concerned with, which is rank-and-file holders of XRP—none of whom, in our experience, believed they were buying a security, they were quite clear that they weren’t.”

Uphold’s position, he added, is that the lawsuit “will wreck, to the tune of billions of dollars. Let’s wait until this thing is adjudicated, and there’s a clear declaration or position around XRP being security today. Because that’s, frankly, all that these holders of XRP care about.”

Pointing to comments by former SEC Commissioner Joseph Grundfest in a letter to the SEC obtained by industry news source The Block, Thieriot asked how “invoking billion-dollar losses for innocent third-parties” furthers the agency’s role of protecting consumers.

Grundfest’s letter—filed on Dec. 17, five days before the SEC unveiled its lawsuit—warned “simply initiating the action will impose substantial harm on innocent holders of XRP, regardless of the ultimate resolution,” according to The Block. “Upon learning of the proceeding, intermediaries will cease transacting in XRP because of the associated legal risk. The resulting reduction in liquidity will cause XRP’s value to decline.”

By more than 50% as it turned out.

A long wait for clarity

Of course, one answer to the accusation that the SEC is hurting small investors is that it has a duty to help prevent future investors from being hurt. 

Which doesn’t explain why it’s taken the agency seven years to file its suit—Ripple was founded in 2013—or why it did it just as the agency’s leadership was changing. The suit was filed on Dec. 22, and SEC Chairman Jay Clayton resigned on Dec. 23.

“Why in the world would the SEC wait 8 years,” asked Abra Global CEO Bill Barhydt when news of the suit broke. “That’s the part that makes no sense. If each XRP sale was a security sale they should have stopped them 7 years ago.”

That is an argument that has been made by Ripple executives, and not just since the SEC lawsuit was filed. The investigation has been going on for years, as have the industry’s pleas for regulatory clarity from the agency. 

In a prescient interview in 2019, Ripple CTO David Schwartz complained that many crypto companies like Ripple, as well as industry organizations like Coin Center, have been “lobbying regulators, not so much to change the law, but to clarify it.”

In the two-year-old interview, Schwartz asked the SEC: 

“Tell us what it is that we need to do so that someone doesn’t come down two years later and say, ‘Hey, what you were doing completely in the open and completely transparently for the last four years was illegal from day one. And you should have known that.’”

At the time, he added that Ripple did not want to be in the position of having to say:

“We meet with you like every week about what we’re doing. And now you’re telling us, we should have realized four years ago that it was fundamentally and completely illegal. That doesn’t make any sense.”

Schwartz repeated that point on the day the SEC filed its suit, tweeting: “The United States is one of the few countries where regulators will, after years of you operating in full light of day and frequently updating them on everything you’re doing, turn around and tell you that you should have known you were breaking decades old laws all along.”

Or as Ripple General Counsel Stuart Alderoty put it in a Dec. 24 tweet: 

“Reminder: The SEC complaint only ‘alleges.’ Nothing has been determined. That’s what Courts are for.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.