Cryptocurrency Firm Ripple Dealing with an S.E.C. Lawsuit

One of the most valuable companies in the cryptocurrency industry announced Monday that it is expected to be sued by the Securities and Exchange Commission for violating investor protection laws.

The lawsuit is expected to accuse San Francisco-based company Ripple of selling unregistered securities when it sold the XRP digital token to investors around the world.

Brad Garlinghouse, Ripple’s chief executive officer, said in an interview that the SEC informed his company on Monday that it intended to file a lawsuit this week. The lawsuit, he said, would be directed against the company along with Mr. Garlinghouse personally and one of the company’s founders, Chris Larsen.

XRP, like Bitcoin and many other cryptocurrencies, has seen rapid growth in value recently. All outstanding XRP tokens were valued at around 22 billion US dollars on Monday, making them the third most important cryptocurrency after Bitcoin and Ether. The mark turned Mr. Larsen and Mr. Garlinghouse into billionaires.

However, XRP, which has been trading since 2012, has long been haunted by questions of how it differs from other cryptocurrencies. Unlike Bitcoin, which was published over a decentralized computer network, XRP tokens were created and distributed by the founders of Ripple and the company they founded.

The SEC has advised in the past that this incorporation could result in Ripple breaking laws against the sale of unregistered securities. Comments from Ripple executives on Monday suggest regulators are now planning to take this argument to court.

“It’s frankly absurd and not in fact grounded,” said Mr. Garlinghouse. “We are very confident in our position.”

News of the lawsuit was first reported by Fortune and the Wall Street Journal.

A SEC spokesman did not immediately respond to a request for comment.

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