COMPLAINT
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TABLE OF CONTENTS Page No.
I.
SUMMARY OF ACTION .......................................................................................1 II.
PARTIES .................................................................................................................3 III.
JURISDICITON AND VENUE ..............................................................................4 IV.
SUBSTANTIVE ALLEGATIONS .........................................................................4 A.
XRP Genesis and the Never Ending ICO ....................................................4 B.
Defendants’ Primary Source of Income is the Sale of XRP ........................5 C.
Defendants Market XRP to Drive Demand and Increase Price ...................6 1.
Defendants Blur Lines Between Ripple Labs’ Enterprise Solutions and XRP to Further Drive XRP Demand ............................................8 2.
Ripple Labs Attempts to Pay Off Exchanges to List XRP ...............12 3.
Ripple Labs Publicly Limits the Supply of XRP to Drive Price Appreciation ......................................................................................14 D.
Defendants Acknowledge that Development of the XRP Ledger is Dependent on Their Technical, Entrepreneurial and Managerial Efforts ..16 1.
Ripple Labs Promises R3 a 5 Billion XRP Option to Drive Adoption of XRP ..............................................................................................17 E.
Ripple Labs Maintains the Centralized XRP Ledger .................................17 F.
XRP Is a Security .......................................................................................20 1.
XRP Purchasers Made an Investment of Money in a Common Enterprise ..........................................................................................20 2.
XRP Investors Had a Reasonable Expectation of Profits .................21 3.
The Success of XRP Requires the Efforts of Ripple Labs and Others ...........................................................................................................22 V.
PLAINTIFF RYAN COFFEY’S PURCAHSE OF XRP.......................................23 VI.
CLASS ALLEGATIONS ......................................................................................24 VII.
CAUSES OF ACTION ..........................................................................................25 VIII.
PRAYER FOR RELIEF ........................................................................................29
1
COMPLAINT
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff RYAN COFFEY, individually and on behalf of all others similarly situated (“Plaintiff”) complains against defendants RIPPLE LABS, INC. (“Ripple Labs”), its wholly owned subsidiary XRP II, LLC (“XRP II”), Ripple Labs’ CEO, BRADLEY GARLINGHOUSE (“Garlinghouse”) and Does 1-10 (collectively, “Defendants”) as follows:
I.
SUMMARY OF ACTION
1.
This is a securities class action on behalf of all investors who purchased Ripple tokens (“XRP”) issued and sold by Defendants. It arises out of a scheme by Defendants to raise hundreds of millions of dollars through the unregistered sale of XRP to retail investors in violation of the registration provisions of state and federal securities laws. 2.
Unlike cryptocurrencies such as Bitcoin and Ethereum, which are mined by those validating transactions on their networks, all 100 billion of the XRP in existence were created out of thin air by Ripple Labs at its inception in 2013.
“In other words, unlike some virtual currencies, XRP was fully generated prior to its distribution.”
20 billion XRP, or 20 percent of the total XRP supply, were given to the individual founders of Ripple Labs, with the remaining 80 billion retained by Ripple Labs. 3.
Defendants have since earned massive profits by quietly selling off this XRP to the general public, in what is essentially a never-ending initial coin offering (“ICO”). Like the better-known initial public offering (“IPO”), in an ICO, digital assets are sold to consumers in exchange for legal tender or cryptocurrencies (most often Bitcoin and Ethereum). These tokens generally give the purchaser various rights on the blockchain network and resemble the shares of a company sold to investors in an IPO. Unfortunately, these ICOs have become a magnet for unscrupulous practices and fraud. 4.
In order to increase demand for XRP, and thereby increase the profits it can derive by selling XRP, Ripple Labs has consistently portrayed XRP as a good investment, relayed optimistic price predictions, and conflated Ripple Labs’ enterprise customers with usage of XRP. For example,
1
Plaintiff is informed and believes that Ripple was known as OpenCoin, Inc. until September 26, 2013 when it changed its name.
2
FinCEN Statement of Facts and Violations, https://www.fincen.gov/sites/default/files/shared/Ripple_Facts.pdf (last
visited May 3, 2018).