Ripple has decided to hold back its IPO due to the SEC even though the initial placement was to be held outside the US. The fintech’s CEO believes that the company might repeat the Coinbase saga with a lawsuit after the IPO was approved. Why did Ripple consider this an excessive risk? And why did the company give up additional capitalization?
The risk of litigation and regulatory issues in the US appears to be overly high for Ripple amid the current environment. Given XRP's uncertain status and ongoing legal cases, the IPO could exacerbate these headwinds. And according to Ripple’s CEO, going public is not a priority for the company.
Additional capitalization from the IPO would be useful when it comes to raising liquidity. However, Ripple decided to incur a significant expense, buying back $1 bln of its shares in order to demonstrate its commitment to the interests of long-term investors. Thus, the company plans to sacrifice some liquidity for strategic purposes.
Thus, an IPO could worsen Ripple's ongoing problems:
- An IPO would elevate the company’s public profile and draw the regulators’ attention to Ripple. Any unresolved questions surrounding XRP and its status as a security could exacerbate the situation.
- An IPO application requires the disclosure of many additional details about the company's business and finances. This could provide regulators and claimants with new information to attack.
- If Ripple draws in new investors in an IPO, this could trigger further lawsuits and complaints from these investors if there are further problems or the value of XRP declines.
- An IPO would effectively “perpetuate” Ripple's current problems and would not give the company leeway to remedy the situation, negotiate or resolve issues with the SEC.
The SEC does wield considerable power over companies seeking IPOs and even listings in the US. Even if Ripple conducts an IPO abroad, the SEC could create problems for all investors and companies partnering with Ripple.
Ripple may be hoping that the regulatory environment in the US will improve over time so they can revisit IPO plans at some point in the future.
Overall, the decision is one of caution and risk management amid a complex regulatory environment. Ripple apparently decided that now is not the best time for an IPO in the United States.