By
Svetlana Soroka
May 19th, 2024
The SEC says Ripple’s intention to issue a stablecoin, an unregistered asset, is further proof that it will continue to break the law.
The United States Securities and Exchange Commission (SEC) has now set its sights on Ripple’s planned stablecoin, according to a recent court filing. The Commission believes that Ripple’s proposed cryptocurrency is proof of the company’s continuous disregard for the law.
SEC Argues against Ripple Using Stablecoin
In a brief on May 7, the SEC described the forthcoming stablecoin as an “unregistered crypto asset”. It then argued that the plan points to the possibility that only a permanent injunction will stop Ripple from unregulated offers and activities. The SEC says Ripple has been conducting unregistered institutional sales of XRP and will keep doing so if the court does not issue an injunction.
In addition to targeting the new stablecoin, the SEC dismissed Ripple’s promise to comply with US securities law since it has licenses from several other jurisdictions. According to the brief, “this argument – akin to saying a New York restaurant need not obtain a liquor license because it obtained a fishing license in California – is absurd”.
Furthermore, the SEC argues that the court should impose a heavy penalty on Ripple because the company made a lot of money from selling XRP. Although the brief admits that the SEC’s requested penalty is large, the SEC argues it is consistent with other cases where the penalty is consistent with gains. The brief adds:
“Given the nearly $1 billion Ripple gained violating Section 5, the multi-billion-dollar business it built selling XRP (accounting for the value of Ripple’s massive XRP holdings and its cash on hand), the ‘low’ penalty Ripple demands would be a ‘slap on the wrist’ that neither punishes nor deters. To the contrary, it would encourage other crypto asset issuers to violate Section 5 by making it a remarkably lucrative endeavor, and thus deprive investors the disclosures Congress mandates, as a mere ‘cost of doing business’.”
Ripple has responded to the SEC’s brief, dismissing it as the SEC’s failure to faithfully apply the law. In a post on X, Ripple’s Chief Legal Officer Stuart Alderoty accused the SEC of trying to pull the wool over the Judge’s eyes. Interestingly, Alderoty said Ripple is “closer than ever” to resolving the lawsuit.
The New Stablecoin
Last month, Ripple announced plans to launch a US dollar-backed stablecoin as it plans to continue the integration between the cryptocurrency and traditional finance industries. According to an official Ripple publication, the stablecoin will be backed by dollar deposits, short-term US government treasuries, and other cash equivalents.
The publication highlights a few benefits of the stablecoin, including what the company describes as a “compliance-first mindset”. Ripple says the company and its subsidiaries collectively hold several licenses, including a New York BitLicense and about 40 money transmitter licenses in the US. In addition, Ripple and its subsidiaries have licenses from the Monetary Authority of Singapore and the Central Bank of Ireland. During the Paris Blockchain Week last month, Ripple CEO Brad Garlinghouse said the stablecoin would support liquidity on its XRP Ledger (XRPL).