A group of Ripple (XRP) investors say the cryptocurrency is a scam, so they’re suing.
Ripple Cryptocurrency Class Action: Case Basics
Plaintiffs: Ripple Investors
Defendants: Ripple’s CEO and XRP II Subsidiary
Gravamen: Is Ripple a security that’s breaking SEC laws and undermining investors?
Disgruntled Investors or Legitimate Cryptocurrency Class Action?
So, is this Ripple class action an investor temper tantrum or valid claim? It’s not our place to judge, but let’s review the facts so you can mold an informed decision about the case.
First: A Quick Review Of How Cryptocurrencies Work
A critical crux of the Ripple class action case is the nature of blockchain technology.
As you may or may not know, new crypto tokens are “made” by solving complex computer problems. “Miners” are the people who set up computers that solve these complex, token-creating calculations.
When startups release a new cryptocurrency, a specific percentage of the digitally ‘minted’ coins are sold to early investors; miners then create more by completing transactions.
When companies are ready to accept investor funds by selling their cryptocurrencies, they typically run an ICO — an initial coin offering, which is similar to a traditional “initial public offering,” or IPO.
Ok, So What’s The Deal With Ripple? Why the Cryptocurrency Class Action?
When Ripple launched, miners had pre-created 100 billion XRP tokens. According to the cryptocurrency’s protocol, miners could not create more tokens after the initial coin offering opened.
According to the lawsuit, Ripple held onto 80% of the supply and left the remaining 20% for potential investors. The suit claims that this investment structure is ultimately wonky because it perpetuates the ICO indefinitely and renders XRP a security. And if it is a security, argues the class, Ripple has been violating SEC laws by not keeping investors in the loop about certain decisions and pertinent information.
What’s Ripple’s Answer to its investors class action?
Ripple is keeping fairly mum. A spokesperson for the company said they are aware of the lawsuit, will perform their own assessment soon, and still firmly believe that Ripple is a not a security.
Connect With A Cryptocurrency Lawyer
Are you grappling with a cryptocurrency legal issue? The Gordon Law Group works with both investors and fintech businesses on all manners of legal issues from contract negotiations to offshore incorporation to ICO consultations. We also have one of the most active cryptocurrency tax divisions in the industry.
Get in touch today to start the conversation and learn about how we can help you.