Ripple Faces Lawsuit for Securities Violations From Angry Investor

A former XRP purchaser who presumably lost money in his investment is now suing Ripple for damages, alleging that it is selling unregistered securities.

Ryan Coffey, an investor who appears to have made losses trading Ripple, filed a lawsuit against the company “on behalf of all investors who purchased Ripple tokens” on Thursday.

The action starts out by summarizing how Ripple works, pointing out that 20% of the XRP supply was initially distributed by Ripple, with the remaining 80% kept by the company.

It then proceeds with the allegations:

“Defendants have since earned massive profits by quietly selling off this XRP to the general public, in what is essentially a never-ending initial coin offering (‘ICO’). [...] In order to increase demand for XRP, and thereby increase the profits it can derive by selling XRP, Ripple Labs has consistently portrayed XRP as a good investment, relayed optimistic price predictions, and conflated Ripple Labs’ enterprise customers with usage of XRP.”

Coffey claims that Ripple violated the Securities Act because what it is selling is essentially a security that isn’t registered with the SEC. However, XRP’s status as a security is still under debate. In fact, the SEC still isn’t clear on which ICOs should be regulated as such or not, making this a landmark case that could potentially establish a legal precedent for future regulatory actions.

Users on Reddit that discussed the case consider that Coffey is suing Ripple simply because he regrets a FOMO purchase of XRP that resulted in losses.

User father_mucker jokingly asked, “Can I sue them as well for not mooning already?”

“If loss of investment caused by FOMO is a legitimate case, then I guess all the people from December should start lining up with their lawyers for a payout,” wrote user Kenjiquest.

In the filing, Coffey insists that XRP is a security because “purchasers reasonably expected to derive profits from their ownership” of it. However, the feeling that purchasers have about a product does not define what it is.

Although Coffey feels wronged by Ripple, it’s likely that the SEC would have already acted against such a high-profile company by now if it thought it was violating any laws.

This simple fact makes it unlikely that the lawsuit will reach any headway. However, if it does, we might see it used as a conduit by which the SEC would regulate the cryptocurrency market going forward.