3D Ripple Logo with the word ‘ICO’ repeating in the background

Ripple Accused of Being a Security in Class Action Law Suit

May 6, 2018, 10:37AM
1 min, 34 sec READ

Ripple is charged with profiting from investors’ losses and is accused of violating securities laws and being a perpetual ICO.

Ripple has been accused of profiting from investors' losses and violating securities regulations -- and essentially has been accused of being a perpetual ICO. The definition of securities is not an absolute one, but securities are often considered financial assets which are likely to provide profit to those behind their creation.

The class-action lawsuit against Ripple was launched by Taylor-Copeland Law and Ryan Coffey on behalf of several investors. The lawsuit names Ripple Labs and Bradley Garlinghouse, the CEO of Ripple, as the accused. This case comes after an influx of similar securities lawsuits, with the American legal system dealing with cryptocurrency securities cases on a nearly weekly basis.

Ripple is notably different from other cryptocurrencies in that it is not mined. Ripple's market value comes from the Ripple team holding most of the cryptocurrency in time-locked escrows to prevent market flooding. Ripple is available to the public, but Ripple plans to save a substantial amount for purchase by institutional investors, who ideally have enough influence to facilitate widespread use. In short, Ripple's value comes from trust in the decisions made by the Ripple team.

By contrast, most cryptocurrencies are mined; the holders discover tokens by using computing power to solve mathematical problems. Mining difficulty generally determines the value of a cryptocurrency; a difficult-to-mine cryptocurrency is more scarce and therefore more valuable. Although this arguably, distributes the cryptocurrency to those not involved in its creation, it may not be enough to prevent cryptocurrencies from being considered securities.

Securities-related legal cases are a trend that is certain to continue. ICOs may be considered securities under U.S. law, and Ethereum is currently under legal scrutiny as officials determine whether it is a security. Matters are complicated by the unique nature of each coin and token.  A decision or Ripple or Ethereum may not be applicable to other cryptocurrencies.  

Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.