Complaint: Ripple Labs, Inc. (“Ripple”), Bradley Garlinghouse (“Garlinghouse”), and Christian A. Larsen

B. 
Ripple’s Lawyers Warned Ripple and Larsen that XRP Could Be a Security 
51. 
Ripple sought the advice of an international law firm regarding certain state and 
federal legal risks associated with the distribution and monetization of XRP.
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52. 
The law firm provided two memos—one on February 8, 2012 and another on 
October 19, 2012 (the “Legal Memos”)—that analyzed these risks. The first memo was addressed 
to the Co-Founder and another individual, and the second to Larsen, the Co-Founder, and Ripple. 
53. 
The Legal Memos warned that there was some risk that XRP would be considered 
an “investment contract” (and thus a security) under the federal securities laws depending on various 
factors. These included, among other things, how Ripple promoted and marketed XRP to potential 
purchasers, the motivation of such purchasers, and Ripple’s other activities with respect to XRP. If 
individuals purchased XRP “to engage in speculative investment trading” or if Ripple employees 
promoted XRP as potentially increasing in price, the Legal Memos warned that Ripple would face an 
increased risk that XRP units would be considered investment contracts (and thus securities).
54. 
Both memos warned that XRP was unlikely to be considered “currency” under the 
Exchange Act because, unlike “traditional currencies,” XRP was not backed by a central government 
and was not legal tender. 
55. 
The October 2012 Legal Memo also advised Ripple and Larsen to contact the SEC 
to obtain clarity as to whether XRP was a security under the federal securities laws. 
56. 
By at least 2013, Larsen was aware of the contents of the Legal Memos. 
57. 
On May 26, 2014, Larsen explained in an email to an individual formerly associated 
with Ripple that the international law firm that wrote the Legal Memos advised “that investors and 
employees could not receive XRP” because that “could risk SEC designation [as] a security.” Larsen 
also explained that the XRP he received upon Ripple’s founding was “comp[ensation] for . . . 
personally assuming th[e] risk” of being deemed the issuers of securities—namely, XRP. 
58. 
In other words, as Larsen himself explained, he was paid at the outset in an asset 
(potentially worth hundreds of millions of dollars) to assume a risk he knew existed—that the sale of 
the asset could constitute an offering of securities for which he would be held responsible. 
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59. 
Despite this knowledge and Larsen’s familiarity with Section 5 from the SEC 
enforcement action that his previous company had settled in 2008 while Larsen was its CEO, Ripple 
and Larsen failed to heed some of the legal advice and warnings in the Legal Memos. Neither 
contacted the SEC to obtain clarity about the legal status of XRP before engaging in a large-scale 
distribution. Moreover, as described in more detail below, Ripple and Larsen (and later 
Garlinghouse) offered, sold and promoted XRP as an investment—precisely the type of conduct the 
Legal Memos had warned could lead to a determination that XRP was a security. 
60. 
In addition, Ripple and Larsen (and later Garlinghouse) never filed a registration 
statement with the SEC prior to offering or selling XRP. Nor did they limit their sales of XRP to 
transactions that fit within legal exemptions to the registration requirements of the Securities Act.
In other words, Ripple and Larsen embarked on a large-scale unregistered public distribution of 
XRP and—with the goal of immense profits—simply assumed the risk that they were violating the 
federal securities laws.