Stellar’s Jed McCaleb Is Dumping Ripple: Is He Breaking Any Laws?
Stellar’s Jed McCaleb, a Ripple Labs co-founder and the architect behind Mt. Gox, has been dumping Ripple since late August, in a bold move that has many observers wondering if the terms of his arrangement with Ripple have changed without being publicly announced.
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Less Than Stellar Conduct From Jed McCaleb
When McCaleb departed Ripple Labs he was given nine billion XRP tokens as part of a deal between him and the startup. He announced an intention to dump his holdings of Ripple in 2014 as he founded Stellar, causing outrage. (His post warning of his intention to dump Ripple on xrptalk has since been deleted.)
Ripple followed up with a lawsuit, preventing McCaleb from selling Ripple at a rate that would adversely affect the crypto’s price. In fact, 5.3 billion XRP coins belonging to McCaleb are in Ripple’s custody, allowing for a measured sell-off over time as the company drip feeds them to him daily.
Pursuant to a 2016 agreement with Ripple Labs, McCaleb’s spend limit is 0.75 percent of total XRP trading volume per day. That agreement can be viewed here. The Wall Street Journal has reported, however, that McCaleb’s sell-off increased dramatically since late August:
“In July, Mr. McCaleb was selling 20,000 to 40,000 XRP a day… starting in August… he started selling 499,312 XRP a day. From Aug. 27 to Aug. 29, he sold 752,076 a day… 29 percent of [the] average daily volume for the period in question.”
McCaleb responded on Twitter that he was not in violation of the agreement:
Kyle reread the agreement closely. I'm not violating it.
— Jed McCaleb (@JedMcCaleb) September 25, 2018
Bear Raid a Securities Violation
On the surface of it, there appears little merit to his argument that he is not in violation of the agreement. But the stakes are even higher than that. In a regulated market, dumping stocks at a pace that may result in their price tanking is illegal.
A bear raid, achieved by heavily shorting a stock, spreading negative rumors, or with large volume selling, is considered market manipulation and is proscribed under the SEC’s Securities Exchange Act of 1934.
It is unclear what McCaleb’s motives are. If they are to undermine the price of XRP relative to Stellar XLM, then were cryptocurrencies SEC regulated, his activities would be illegal. Even without the presence of malfeasance, knowingly impacting a price through heavy buying or selling activity, placing other investors at risk, is not looked upon favorably by regulators.
Cryptocurrencies Now Deemed Commodities
Of course, Ripple is not deemed a security–yet. In fact, a new ruling in a U.S. Federal Court this week concluded that digital currencies are commodities. As commodities, cryptocurrencies fall under the purview of the CFTC. If XRP is a commodity then, Section 753 of the Dodd-Frank Act amended Section 6(c) of the Commodity Exchange Act (CEA) “making it unlawful for any person, directly or indirectly, to manipulate or attempt to manipulate the price of… any commodity in interstate commerce…”
As long as cryptocurrencies continue to operate in a legal gray zone, much of what McCaleb has to lose here is his reputation and a lawsuit Ripple may choose to file if he has violated the terms of their 2016 agreement.
Sound off below. Should Ripple enforce the agreement they have with Jed McCaleb to protect their community of XRP holders?
Images via Pixabay