The U.S. Securities and Exchange Commission (SEC) has signaled its intent to investigate Ripple’s recently announced stablecoin project. In a filing, the SEC raised concerns about the regulatory status of the stablecoin, describing it as an unregistered crypto asset.
The court document reads in part:
“Ripple’s primary business continues to be, as it has been since 2013, unregistered sales of XRP. It also plans to issue a new unregistered crypto asset.”
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Ripple, a blockchain company known for its XRP token, unveiled plans for a dollar-backed stablecoin in early April. This “enterprise-grade” stablecoin, intended to launch on both the XRP Ledger and Ethereum blockchains, aims to create a bridge between traditional finance and the cryptocurrency world. While a name for the project has yet to be revealed, David Schwartz, Ripple’s Chief Technology Officer, has indicated a planned unveiling in June.
The SEC’s scrutiny of the stablecoin comes amidst an ongoing lawsuit against Ripple. The SEC’s recent filing argues for a permanent injunction against Ripple, citing the company’s business model as heavily reliant on XRP sales to On-Demand Liquidity (ODL) customers.
Last year, Judge Analisa Torres of the U.S. District Court ruled that Ripple’s direct sales of XRP tokens to institutional investors constituted a violation of securities laws. The SEC contends that Ripple is attempting to reargue settled points from the summary judgment phase of the case. The agency’s filing states, “Ripple can appeal, but its persistent refusal to accept the Order’s holding for purposes of remedies shows an injunction is critical to avoid another violation.”
The SEC is also pushing for a significant financial penalty against Ripple. The filing argues that a meager $10 million penalty, as proposed by Ripple, would fail to deliver a meaningful punishment for the alleged violations. The SEC cites legal precedent where penalties are calculated based on the defendant’s ill-gotten gains.
Despite the ongoing legal battle, Stuart Alderoty, Ripple’s General Counsel, expressed optimism about a resolution. He stated, “More of the same from the SEC — failing to faithfully apply the law and trying to mislead the Judge.
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The good news is that we are closer than ever to putting this lawsuit behind us, though unfortunately, many are just starting the journey.” Alderoty’s comment suggests Ripple anticipates a nearing conclusion to the lawsuit, even as the SEC continues its investigations.
The lawsuit and the regulatory scrutiny surrounding the stablecoin project create uncertainties for Ripple. While Ripple maintains confidence in a swift resolution to the lawsuit, the SEC’s actions raise questions about the future of the stablecoin and its potential impact on the cryptocurrency industry.
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