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 managing director, said in an interview that the S.E.C. informed his company on Monday that it would 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 S. has pointed out in the past that this company formation could mean that Ripple is violating 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 really justified," said Garlinghouse. "We are very confident in our position."
News of the lawsuit was first reported by Fortune and the Wall Street Journal.
A press officer for the S.E.C. did not immediately respond to a request for comment.