An investor who maintains they lost money buying and selling the cryptocurrency XRP has registered a class action lawsuit against distributed ledger startup Ripple, alleging that the firm violated state and federal securities laws.
Coffey is seeking compensation "on behalf of shareholders who purchased Ripple tokens ("XRP") issued and sold by Defendants," naming Ripple, XRP II (the corporation's registered and certified MSB), CEO Brad Garlinghouse, along with 10 unnamed parties.
Ripple Labs and Garlinghouse came under increased scrutiny in recent weeks across the amount of association they have with XRP, a cryptocurrency that surged to current market capitalization of over $140 billion in January, but has since dropped below $35 billion. Ryan Zagone, Ripple's director of regulatory relations, told a UK parliamentary committee Tuesday that "there's not an immediate connection between Ripple that the company and XRP."
For some observers, however, the relationship involving the company and the cryptocurrency remains clear. Thursday's criticism asserts:
"The evolution of the XRP Ledger, and the proceeds which investors anticipated to derive there from, were and are predicated entirely on the technical, technical, and entrepreneurial efforts of Defendants and other third parties employed by Defendants."
Whether a financial instrument qualifies as a collateral is dependent upon the Howey test, then a standard derived from an 1946 Supreme Court case.
If an instrument involves an investment of dollars and carries a reasonable expectation of profits - an anticipation that depends on the actions of a specifically identifiable group of people - then it's actually a security. Coffey's complaint argues that XRP checks off all of those boxes.