UPDATED 20:22 EST / JULY 13 2023


Ripple legal victory in XRP case overshadowed by Celsius fraud charges

It was a mixed bag for the cybersecurity industry today, as Ripple Labs Inc. bagged a win over claims that it was violating federal securities law, but was overshadowed by the founder of Celsius Network LLC being charged over a pump-and-dump scheme.

The good news for Ripple was the resolution of a U.S. Securities and Exchange Commission lawsuit filed in 2020 that claimed that the company and two of its executives were illegally selling unregistered securities. The lawsuit claimed that beginning in 2013, Ripple sold unregistered securities called XRP to investors in the U.S. and worldwide.

XRP is better known as a cryptocurrency and not a security, and that’s what U.S. District Judge Analisa Torres ruled today. According to Reuters, Torres ruled that Ripple’s XRP sales on public cryptocurrency exchanges were not offers of securities under the law because purchasers did not have a reasonable expectation of profit tied to Ripple’s efforts. The ruling found that the sales were “blind bid/ask transactions,” in which buyers “could not have known if their payments of money went to Ripple or any other seller of XRP.”

Although the ruling that XRP was not a security, it wasn’t an across-the-board win for Ripple. Judge Torres found that the company’s $728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities.

The cryptocurrency community received the news well, with Ripple XRP tokens surging over 80% following the ruling. The good news was also shared across the broader market, as bitcoin hit a year-to-date high of $31,800 and Stellar tokens, which are similar to XRP, surged 67%.

The news came on the same day that former Celsius Network Chief Executive Officer Alex Mashinsky was charged with defrauding Celsius customers. Mashinsky, along with former Celsius Chief Revenue Officer Roni Cohen-Pavon, were also charged with manipulating the market for the Celsius cryptocurrency token.

Mashinsky was formally charged with securities fraud, commodities fraud and wire fraud for defrauding customers and misleading them about core aspects of the company he founded, including Celsius’s success, profitability and the nature of the investments it made using customer funds.

Trouble at Celsius, which offered a cryptocurrency lending platform, emerged in June last year when the company paused withdrawals, citing market volatility. In early July 2022, a lawsuit accused the company of fraud and acting as a classic “Ponzi scheme.” The company filed for bankruptcy on July 13, 2022 after being labeled “deeply insolvent” by Vermont’s Department of Financial Regulation.

Along with charges against Mashinsky and Cohen-Pavon, the Justice Department also announced that it had entered into a non-prosecution agreement with Celsius, by which the company has agreed to accept responsibility for its role in the fraudulent schemes.

The agreement considered that Celsius is in Chapter 11 bankruptcy proceedings and is making efforts to maximize recovery for victims in connection with the bankruptcy, as well as that it’s cooperating with the government. What’s left of Celsius was acquired by a group led by Arrington Capital in May.

Photo: Marco Verch/Flickr

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