Ripple Labs, the company behind the XRP token is apparently back in court once again as they have just been hit with a third lawsuit from an investor. Like the two lawsuits before it, this one also claims that XRP is an unregistered security, and that it is not a decentralized cryptocurrency (i.e. not a security) in the same way that bitcoin and Ethereum are.
Lawsuit Pressures for Ripple Labs
According to a portion of the lawsuit that was quoted by Coindesk, XRP has all of the “traditional hallmarks of a security, yet defendants failed to register them as such.” Further, the lawsuit alleges that the purchasing of XRP “constitutes an investment contract, as XRP purchasers, including plaintiff, provided [money]… In exchange for XRP”.
Lastly, the quote from Coindesk states that the plaintiff of the suit and others who hold XRP are “reasonably expected to derive profits from their ownership of XRP, and the defendants themselves have frequently highlighted this profit motive.”
Ripple Labs + XRP = ?
What has been difficult to ascertain so far is the real connection between Ripple Labs and XRP. So far, Ripple Labs has released a few products targeted towards banks and other financial institutions such as XCurrent, but none of these programs use the XRP cryptocurrency.
On the surface, XRP does not appear to be directly like a security in terms of its behavior. For example, owning XRP does not denote ownership in Ripple Labs like a stock does, and it does not entitle anyone to dividends or other payouts.
On the flipside, though, Ripple Labs and its senior staff hold the vast majority of all XRP coins that will ever exist. Therefore it only takes a moment to realize that anything that benefits the value of XRP benefits the senior staff at Ripple monetarily. It could also act as a way to raise the profile of the company, as many people simply referred to XRP as “Ripple”. In other words, if XRP goes up, banks will take more of an interest in the company – even if the two aren’t directly linked.
Suing for what?
One surprising component of the lawsuit is that the plaintiff is apparently seeking damages in relation to the major price drop that Ripple saw over the last several months.
Specifically, XRP was trading for nearly four dollars at its peak and has since dropped considerably to under half a dollar. Suing for a price drop is not unheard of. According to Bloomberg, there will always be so-called “stock-drop lawsuits“. They are just a part of doing business.
Ripple XRP Price this Year, Image from Coinmarketcap
Stock-drop lawsuits are often based on claims such as that the company in question didn’t release it’s bad news soon enough, or in the right way, and caused prices to drop. According to the Coindesk piece, as XRP is allegedly a security according to the suit, Ripple Labs should have been able to exert some degree over control of the price.
For those of us who have been involved in crypto for quite some time, a claim like this is can appear spurious at best. However, if XRP is eventually determined by the SEC or a court to be a security, then that’s another story entirely. For now though, Ripple Labs has stated on multiple occasions that they firmly believe that XRP is not a security.