One of the most valuable companies in the cryptocurrency industry said on Monday that it expected to be sued by the Securities and Exchange Commission for violating investor protection laws.
The suit is expected to accuse the San Francisco company, Ripple, of selling unregistered securities when it sold the digital token XRP to investors around the world.
Brad Garlinghouse, Ripple’s chief executive, said in an interview that the S.E.C. informed his company on Monday that it planned to file suit this week. The suit, he said, would be against the company, Mr. Garlinghouse personally and one of the company’s founders, Chris Larsen.
XRP, like Bitcoin and many other cryptocurrencies, has been skyrocketing in value recently. All the outstanding XRP tokens were worth around $22 billion on Monday, making it the third most valuable cryptocurrency after Bitcoin and Ether. The token has turned Mr. Larsen and Mr. Garlinghouse into billionaires.
But XRP, which has been traded since 2012, has long been dogged by questions about how it is different from other cryptocurrencies. Unlike Bitcoin, which was released through a decentralized network of computers, XRP tokens were created and distributed by the founders of Ripple and the company they created.
The S.E.C. has indicated in the past that this corporate setup could mean that Ripple violated laws against selling unregistered securities. The comments from Ripple executives on Monday indicate that the regulators now plan to take this argument to court.
“It’s frankly preposterous and not grounded in fact,” Mr. Garlinghouse said. “We are very confident in our position.”
The lawsuit would be a major threat to Ripple and investors in XRP because they were betting on XRP’s use as a new kind of currency. If it is ruled to be a security, that would most likely become impossible.
A press officer for the S.E.C. did not immediately respond to a request for comment.