SEC Lawsuit Against Ripple Could Rattle Crypto Exchanges

Creator of third-largest cryptocurrency, XRP, sued over alleged $1.4 billion unregistered offering.

The US Securities and Exchange Commission (SEC) has filed a civil lawsuit against cryptocurrency firm Ripple Labs Inc. and two of its executives, alleging they illegally raised nearly $1.4 billion in an unregistered offering of its digital asset XRP. Ripple’s XRP is the third-largest cryptocurrency by market cap after Bitcoin and Ethereum.

According to the SEC’s complaint, Ripple co-founder and former CEO Christian Larsen, and current CEO Bradley Garlinghouse raised capital to finance the company’s business through the sale of XRP digital assets in an unregistered securities offering to investors.

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Ripple also allegedly distributed billions of XRP in exchange for non-cash consideration, such as labor and market-making services. According to the complaint, the XRP sales also affected personal unregistered sales of XRP totaling approximately $600 million. The complaint alleges Larsen and Garlinghouse violated federal securities laws when they failed to register their offerings and sales of XRP or prove they were exempt from registration.

“Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution, and a secondary trading market, must comply with the federal securities laws that require registration of offerings,” Stephanie Avakian, director of the SEC’s Enforcement Division, said in a statement.

“Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business.”

According to the lawsuit, Ripple sold more than 14.6 billion units of XRP in return for cash or other consideration worth over $1.38 billion in order “to fund Ripple’s operations and enrich Larsen and Garlinghouse.” The SEC accuses Ripple of creating an “information vacuum” that allowed Larsen and Garlinghouse to sell XRP into a market “that possessed only the information defendants chose to share about Ripple and XRP.”

The SEC also said Ripple received legal advice as early as 2012 that XRP could be considered an “investment contract” under certain circumstances and therefore is a security under federal securities laws.

“Ripple and Larsen ignored this advice and instead elected to assume the risk of initiating a large-scale distribution of XRP without registration,” the complaint said.

The lawsuit could spook cryptocurrency exchanges selling XRP, as they risk being charged by the SEC for allowing unregistered securities to be traded. Bruce Fenton, CIO of Atlantic Financial Inc. and a former board member of the Bitcoin Foundation, warned cryptocurrency exchanges against continuing to sell the digital asset based on the SEC’s charges.

“I think any crypto exchange who doesn’t delist XRP this week is out of their mind,” Fenton said in a tweet. “If the SEC says it’s a security you’d be crazy to list it without a license.”

Ripple is already facing a class action lawsuit filed by a group of investors who claim the company never registered XRP as a security with the SEC, and have accused Ripple and Garlinghouse of making misleading statements. In October, Garlinghouse told CNBC in an interview that he was considering moving the firm to London because of the strict regulatory environment for digital assets in the United States.

The SEC’s complaint, which was filed in federal district court in Manhattan, charges Ripple, Larsen, and Garlinghouse with violating the registration provisions of the Securities Act of 1933, and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties.

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Dalio Forges ESG Partnership with French Firm

His Bridgewater hedge firm and Lyxor will offer climate-friendly investing vehicle in Europe in 2021.


Ray Dalio’s hedge fund firm, Bridgewater Associates, is launching a sustainability strategy in Europe, upping its exposure to the environmental, social, and governance (ESG) investing trend.

Bridgewater, the world’s largest hedge operation with $140 billion in assets, aims to open a sustainable fund next year. Dalio is no stranger to ESG efforts: In 2018, he and fellow billionaire Mike Bloomberg announced a marine biology venture focused on ocean conservation. Bridgewater previously has advised clients on ESG investing.

The Dalio firm has partnered with Lyxor Asset Management, a subsidiary of French bank Societe Generale, and will offer ESG investments in Europe—via a UCITS (Undertakings for Collective Investment in Transferable Securities) structure, a cross between a mutual fund and a hedge fund.

Lyxor already has $15 billion in ESG investments. The new joint endeavor’s investment philosophy will borrow from Bridgewater’s quarter-century-old All Weather strategy. That’s a flexible approach that seeks to profit in all kinds of economic circumstances.

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“The journey of scalable sustainable investing is a strategic priority for Bridgewater and our clients,” said Brian Kreiter, Bridgewater’s chief operating officer (COO), in a statement. “Using the same research process that we have developed over the last 40 years, we have built a systematic process to engineer both the sustainability and financial characteristics of portfolios.”

Bridgewater’s new strategy will invest along the lines set down in the United Nations’ Sustainable Development Goals, which aim to mitigate climate change, and also to fight poverty and inequality.

Dalio has long worried about the dire state of civilization. His new book, The Changing World Order, seeks to analyzes its woes and prescribes ways of dealing with vexing macro problems. In a recent excerpt from the book, posted on LinkedIn, he wrote that disorder is growing in the US, where “people and politicians are now at each other’s throats to a degree greater than at any time in my 71 years—and these struggles over wealth and power are becoming more vicious.” 

How the Lyxor partnership fares will be interesting. ESG strategies have attracted criticism for years that they are not a winning investment credo. More recently, ESG’s defenders have argued that this investing approach heads off serious problems a company might have with ethics or environmentally destructive ways.

Bridgewater apparently has hit some rough patches of late, and suffered some client withdrawals, although ESG orientation appears to have nothing to do with this. Its flagship Pure Alpha II fund has lost 18.6% through early November, and suffered some client departures, according to Bloomberg News. On the other hand, the All Weather strategy returned 5.7% this year through November, the news service reported. Bridgewater hasn’t commented publicly on any of this.

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