San Francisco-based blockchain firm Ripple has been hit with another legal action by one of its key founders. According to Bloomberg’s report on January 5, UK-based investments firm Tetragon Financial Group has filed a lawsuit against Ripple in Delaware Chancery Court. A component of the legal action demands Ripple to impose its binding right for Ripple to redeem series C preferred stock.
In December 2019, Tetragon Financial Group was the leading investor during Ripple’s Series C funding, which raised $200 million. The money was conveyed to revamp the XRP Ledger and to broaden the use of the XRP. Notably, the investment company aims for the judicial system to freeze all liquid or cash assets owned by Ripple until the firm completes the payment. Also, Tetragon aims to secure a restraining order, on top of a faster trial alongside interim protective measures.
Ripple getting legal slam internally
The new internal Ripple lawsuit follows the December 2020 lawsuit where the United States Securities and Exchange Commission (SEC) sued the firm for allegedly distributing securities worth over $1 billion illegally. The repercussions have been catastrophic for Ripple and XRP since the legal action.
Besides the XRP massively shedding its value, various cryptocurrency platforms have withdrawn or are planning to withdraw their support for the token for traders in the United States. In particular, Grayscale Investment Trust withdrew XRP from its multifarious public cryptocurrency fund, sold the holdings, and utilized the funds to acquire other digital assets.
Notably, the SEC’s legal action also impacted popular U.S.-based crypto exchange platform, Coinbase, for allegedly taking commissions from unauthorized trading of XRP on the exchange.
Why is the SEC vs. Ripple lawsuit significant?
The December legal action bombshell against Ripple might be unclear to the average spectator. The lawsuit results have been devastating, with the price of XRP token in freefall and exchanges, investment firms, and partners distancing themselves from the blockchain firm in recent weeks. The lawsuit might have sweeping industry consequences, and here is why.
The lawsuit against Ripple is crucial because if the SEC emerges victorious, XRP will be categorized as security and not a currency in the U.S. The victory will expand the Howey test’s interpretation, establishing a legal precedent that may cause other identical crypto assets to be treated as securities. In layman’s language, security refers to anything that represents a part of an institution’s value. Securities include stocks in firms, government debts through government bonds. The regulatory framework of securities is much more challenging compared to that of currencies and commodities. The securities regulations in the United States are determined and sanctioned by the Securities and Exchanges Commission.
The majority of digital assets are securities, particularly those distributed to investors through an initial coin offering (ICO). The reason is that the majority of these cryptocurrency projects with ICO lack any operational product during kickoff. Although these digital assets are not a stock share as per the SEC, they are similar and are deemed securities in the United States. Bitcoin Supreme app is the best platform for trading Bitcoin while Ripple is losing so much nowadays.