The battle is on between Ripple creators and investors to prove if the cryptocurrency is a security or not.
One investor has filed a multi-million dollar suit for damages claiming Ripple is traded in violation of US security laws.
Regulator the Securities Exchange Commission (SEC) says Ether and Ripple have all the hallmarks of securities and could be considered as such but has not made an official ruling to date.
But the creators are urging the SEC to reconsider because if they are designated as securities, they are in contravention of trading rules and could face law suits from unhappy investors who may have lost money invested in the cryptocurrencies.
Classification as securities also weighs down cryptocurrencies with legal duties and costs of meeting strict regulation.
Unregistered sales claim
The move to class Ripple as a security has triggered a class action by one unhappy investor from San Diego.
He has filed a suit against Ripple Labs, the CEO and a subsidiary company seeking damages.
The claimant explained he bought 650 XRP for $2.60 each – a total of $1,690 – on January 6 this year and sold at $1.70 ($1,105) on January 18, generating a loss of $585.
Ripple is currently trading at around $0.74 cents after hitting an all-time high of $2.70 on January 7, according to web site Cryptocompare.
The suit alleges that the defendants raised hundreds of millions of dollars from the unregistered sale of XRP to retail investors, violating state and federal securities laws.
Not a security, says Ripple
“The defendants have engaged in an ongoing scheme to sell Ripple to the public in a never-ending ICO which accelerated rapidly in 2017 and early 2018,’ say the court papers.
“The XRP offered and sold by the defendants have all the traditional hallmarks of a security. However, the defendants did not register XRP with the SEC, and many of the representations the defendants made regarding XRP were designed to drive demand of XRP, allowing them to obtain greater returns on their XRP sales.”
Ripple’s chief market strategist, Cory Johnson, commented in April, before the law suit was laid: “We absolutely are not a security. We don’t meet the standards for what a security is based on the history of court law.”
If the action succeeds, the way is open for disgruntled investors to issue writs through the courts against cryptocurrencies to demand damages for their losses