Bitstamp has initiated legal action over more than $1m in disputed funds related to the sale of nearly 100m XRP last month.
Bitstamp, which operates a Ripple gateway and bitcoin exchange, filed a complaint for interpleader on 1st April in the US District Court in the Northern District of California. Jed McCaleb, the founder of both Ripple Labs and Stellar, and two of McCaleb’s family members were named in the complaint.
The $1,038,172 in disputed funds were used by Ripple Labs to purchase 96,342,361.6 XRP put up for sale through an account allegedly controlled by McCaleb, according to the complaint.
The dispute represents the latest battle between Ripple Labs and McCaleb, who co-founded the company only to later depart and establish Stellar, a fork of the Ripple network. Since then, the two sides have fought over network issues and were later the subject of an in-depth report by the New York Observer.
Origin of dispute
The filing goes on to state that Ripple Labs told Bitstamp that the sale was in violation of an contract agreed upon between the company and McCaleb. That agreement, struck in August 2014, established that McCaleb was entitled to sell only $10,000 in XRP per week during the first year, an amount that will become gradually greater over a seven-year schedule.
Ripple Labs and Jacob Stephenson, McCaleb's cousin, have since laid claim to the money, with Ripple Labs allegedly sending two letters to Bitstamp between 26th and 30th March demanding release of the funds.
Bitstamp has asked the court to settle the claims dispute, according to court documents obtained by CoinDesk. Bitstamp’s legal team wrote in the filing that “with respect to the disputed funds, Bitstamp is a disinterested stakeholder.”
Bitstamp counsel George Frost, who represented Ripple Labs in a dispute following the resignation of former board member Jesse Powell, said in a statement:
"Bitstamp was unable to resolve this demand with Ripple Labs. Given our inability to ourselves determine the facts underlying the ownership dispute, we decided that an Interpleader filing was the proper approach. Indeed, it is only method to resolve disputes in these difficult circumstances."
When reached for comment, Ripple Labs spokesperson Michael Azzano characterized the process as "pretty routine".
"This is Ripple Labs looking at some transactions that might run counter to their agreement with Jed," he told CoinDesk.
McCaleb, in turn, alleges that the XRP were gifted to family members prior to the finalization of his agreement with Ripple Labs, and therefore, were not subject to this agreement.
"I am 100% sure I am not in breach of any agreement with Ripple Labs and all evidence will support that," he said.
Alleged effort to boost sale
According to the complaint, Ripple Labs told Bitstamp that McCaleb intended to sell the XRP in order to use those funds to underpin a failed effort to sell 650 million stellars, the proceeds of which would then be used to support the development of the Stellar network.
Identified in the complaint are two Ripple addresses, each of which are claimed to be under the control of McCaleb and his family – rUf6pynZ8ucVj1jC9bKExQ7mb9sQFooTPK (cited in the complaint as “rUf6”) and r3Q3B6A2giHDMef83AztzBStBm1JBmxUKX (“r3Q”).
The filing reads:
“On or around March 20, 2015, r3Q offered to sell 98,846,600 XRP on the Bitstamp USD order book, which included the 89,999,900 XRP it received from rUf6 on or around that date and an additional 8,846,700 XRP of the 10m XRP that r3Q had previously received from rUf6 on or around January 6, 2015. On information and belief, this offer was made at McCaleb’s direction and for McCaleb’s and Stellar’s benefit, with the intent to use the funds to purchase STR from the auction STR.”
The same day, the complaint states, Ripple Labs moved to purchase 96,342,361.6 XRP at a cost of $1,038,172. Ripple Labs later told Bitstamp it bought the XRP “in order to avoid and mitigate irreparable harm and damages".
The filing continues:
"Ripple Labs’ agent sent the $1,038,172 in purchase funds to r3Q on the Bitstamp gateway. Ripple Labs is demanding the purchase funds back, upon which it has agreed it will return the purchased XRP to rUf6."
Bitstamp alleged that since the XRP was sold, there have been attempts to use the $1,038,172 to purchase stellars. The funds, according to the filing, have been dispersed to the r3q account as well as two other accounts – rvYAfWj5gh67oV6fW32ZzP3Aw4Eubs59B and rPQB4rgmwoaCjdX4BeoWikeshWL3fLMLD7 – since the sale took place.
Disputed funds frozen
Bitstamp said that on 31st March, it froze those accounts “due to the pending ownership controversy, regulatory and AML concerns and the size and circumstances of the transfers”.
Ripple Labs, the complaint states, is seeking to effectively reverse the transaction by having the $1,038,172 transferred back to its account in exchange for the XRP being transferred back to the rUf6 account.
The filing reads:
“Ripple Labs made a claim to the disputed funds that r3Q is attempting to remove from the Ripple Network and asked Bitstamp to transfer the disputed funds to Ripple Labs’ Ripple account in exchange for Ripple Labs transferring the XRP back to rUf6.”
According to Bitstamp, McCaleb and Nancy Harris – his aunt – have yet to make a formal claim on the funds but that they may opt to do so in the future. The filing added that other unknown parties could try and assert claims over the funds as well.
In addition to asking the court to settle the claims dispute between the different parties, Bitstamp has asked that it be allowed to continue holding the disputed funds until the court makes a judgment on the matter. The company also asked that it be absolved from any future litigation in relation to the disputed funds.
Tug of war image via Shutterstock