If Ripple executives had hoped a change in leadership at the Securities and Exchange Commission (SEC) would dial back momentum on the agency’s case against the company, they have at least received their answer.
The SEC, in a court filing Wednesday, accused Ripple of trying to "harass" the regulator — and of "gamesmanship with respect to discovery," Bloomberg reported.
Ripple had asked a judge to force the SEC to submit internal emails and other communications on officials’ personal devices.
The regulator in December sued Ripple, its CEO and its co-founder for allegedly violating investor-protection laws by selling nearly $1.4 billion in XRP, a digital asset the company’s founders developed in 2012. The agency is calling the coin an unlicensed security, but Ripple’s leadership contends it is merely a medium of exchange. The SEC, however, added that Ripple’s CEO, Brad Garlinghouse, and co-founder Chris Larsen "created an information vacuum" that allowed them to sell XRP into a market that only had information they chose to share.
Garlinghouse particularly blasted the agency’s timing — the lawsuit came about a week before then-SEC Chairman Jay Clayton was set to leave office.
"Clayton did this with one foot out the door. Rather shamefully, he has decided to sue Ripple, and leave the legal work to the next chairman," Garlinghouse said.
Digital asset enthusiasts may be looking for the — er, ripple effect of a ruling in the case since the agency doesn’t seem to consider tokens such as Bitcoin and Ether to be securities — a notion Ripple told the court in December "amounts to picking virtual currency winners and losers."
Bitcoin has seen its value jump more than sevenfold over the past year, according to Yahoo Finance. (It would be 8½, but the currency has dipped from an April 14 high above $64,863.) Meanwhile, XRP lost about 60% of its worth in the week after the SEC suit was filed, according to Bloomberg, as Coinbase and other exchanges delisted it.
The SEC isn’t the only regulator to allege game-playing by a company it hopes to police. Massachusetts securities regulators ratcheted up their complaint against day-trading app Robinhood this month, asking that the company’s registration as a broker-dealer in the state be revoked. State officials filed an administrative complaint in December, alleging the company uses "aggressive tactics to attract inexperienced investors" and "gamification strategies to manipulate customers" into frequent interaction with the app. The complaint marks the first test of a fiduciary rule the state enacted last year.
Since the December complaint was filed, Robinhood did away with its signature digital confetti illustration meant to celebrate users’ investing milestones.
William Galvin, Massachusetts’s secretary of the commonwealth, cited the feature in his complaint. Gensler later referenced the confetti during a March hearing in front of federal lawmakers, prior to his confirmation to lead the SEC.
"If the focus of a conversation is around confetti and not around these people taking these first steps … then we’ve done something that’s just off base," Madhu Muthukumar, senior director of product management at Robinhood, told The Wall Street Journal last month.
Despite the confetti’s demise, Massachusetts regulators, in an April 15 filing, castigated Robinhood over what it called a "continued … pattern of aggressively inducing and enticing trading among its customers" — this time citing a promotion that offers customers cash rewards based on new deposits, the Journal reported.
"It became clear that [Robinhood] was not going to change their conduct," Galvin told the publication. "They simply refuse to acknowledge that they have a duty to their customers to treat them as investors and not just people who are being entertained and being lured into investing money with them."
However, while Galvin’s office has filed its complaints out of court, Robinhood filed its own complaint against Galvin and the Massachusetts Securities Division in court.
The company asserted the Massachusetts fiduciary rule — requiring broker-dealers to act in their clients’ best interest — should be invalidated and that Galvin’s December complaint should not proceed until that point is resolved.
Robinhood reiterated its stance that the company "is a ‘self-directed’ brokerage firm that does not make investment recommendations or provide investment advice."
"Showing a list of companies in a certain sector is not a recommendation. Giving people information about the movement of the stocks they own or watch is not a recommendation," the company wrote in a blog post on its website the day it filed its complaint. "The Massachusetts Securities Division’s attempt to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for. We don't believe our customers are naive as the Massachusetts Securities Division paints them to be."
Robinhood said Galvin lacked the authority to override Massachusetts's top court’s conclusion that brokerage firms are not considered fiduciaries of their customers. It also said the state’s fiduciary rule conflicts with a federal regulation the SEC adopted in 2019 explicitly rejecting the standard Galvin was enforcing, Reuters reported.
Galvin, in a statement, called Robinhood’s lawsuit "another example of [the company’s] complete rejection of responsibility to their customers," according to Bloomberg.