XRP: Ripple Distances Itself from Linqto Amid Regulatory Heat

XRP is once again in the spotlight, but this time for reasons that extend beyond its typical market movements. Ripple, the blockchain firm behind the XRP Ledger, has formally disassociated itself from any official dealings with Linqto, a private investment platform currently under regulatory investigation.

Ripple CEO Brad Garlinghouse recently took to X.com to clarify the company’s position amid mounting pressure from U.S. regulators. He confirmed that Ripple has never authorized direct equity sales through Linqto and emphasized that the platform owns 4.7 million Ripple shares via secondary market purchases, not from Ripple itself.

According to Garlinghouse, these shares were independently acquired from pre-existing shareholders, and Ripple had previously chosen to halt the approval of transactions involving Linqto as early as late 2024. This proactive step was driven by concerns around how Linqto facilitated these sales and the potential misconceptions surrounding ownership structures.

This isn’t the first time Ripple executives have voiced such concerns. Ripple’s Chief Technology Officer, David Schwartz, had earlier explained the mechanism by which Linqto customers gained exposure to Ripple equity. Rather than owning Ripple shares outright, these investors purchased interests in a special-purpose vehicle (SPV) that itself held Ripple equity. Schwartz likened the structure to owning a fraction of an entity which controls the shares, but not the shares themselves.

The timing of Ripple’s clarification aligns with growing regulatory pressure on Linqto. Investigations by both the U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) are underway, triggered by accusations that Linqto’s former CEO William Sarris may have artificially inflated the value of Ripple shares by over 60% and unlawfully sold these assets. Serious questions have also been raised about the sale of shares to individuals who do not meet the SEC’s criteria for accredited investors.

John Deaton, a well-known pro-crypto legal expert, added a critical voice to the conversation. Deaton estimates that 11,500 users invested in Linqto’s SPVs thinking they were acquiring Ripple shares. Shockingly, about 5,000 of these individuals may be non-accredited investors, raising significant red flag over compliance with federal securities laws.

Deaton stated, “These are not Ripple shares per se… but shares/units of [SPVs] that own Ripple shares. I’ve been told 4,000 to 5,000 of the SPV Ripple investors are non-accredited, making this a regulatory compliance nightmare.”

Linqto has undergone a leadership change in the wake of these issues. Its new executive team has recognized the depth of the legal challenges it faces. In an April update, the firm confirmed that it had frozen investor accounts as early as February. Moreover, the company stated that it might file for Chapter 11 bankruptcy protection, a move that could classify investors as unsecured creditors — leaving them with limited recourse.

This unfolding controversy presents a risky landscape for both individual and institutional participants in the secondary crypto asset market. For Ripple and XRP enthusiasts, the situation underscores the ongoing need for transparency and investor education, especially when dealing with platforms that operate outside traditional regulatory frameworks.

While Ripple attempts to distance itself from the ongoing turmoil, its public response aims to reassure stakeholders that the company maintains robust corporate governance. As the SEC and DOJ continue their probe into Linqto’s operations, Ripple appears focused on upholding its integrity amidst an increasingly complex regulatory environment.

Related: Expert Advice: Sell XRP If You’re Confused

For XRP, the broader implications may touch on investor trust and the role of secondary marketplaces in shaping the liquidity and valuation of pre-IPO crypto assets. Ripple’s actions may set a precedent for other blockchain firms navigating similar reputational risks stemming from third-party investment platforms.