Ripple Labs co-founder Jed McCaleb’s recent decision to sell his entire stock of XRP was the start of a difficult week for the open-source payments processor. After McCaleb made his announcement, Ripple’s price took a steep fall. Investor confidence declined further when Jesse Powell, known by most as CEO of Kraken, resigned from the board of Ripple Labs and levied some disturbing remarks about the company’s management. Feeling betrayed, Ripple had their lawyers draft and send Jesse Powell a cease and desist letter. Powell posted that letter online for the Ripple community to read and has publicly responded to the accusations made therein. Excerpts from his statement are posted below.
[dropcap size=small]I[/dropcap]n their cease and desist letter, Ripple forcefully accused Jesse Powell of knowingly lying about a number of issues, including his relationship with Jed McCaleb, his conversations with co-founder Chris Larsen, and the series of events that led to his resignation. The letter event went so far as to accuse him of deliberately sabotaging Ripple Labs in an effort to leverage a large payday for him and his supposed-conspirator McCaleb. Ripple gave him a 3-day ultimatum to retract his statements; however, in his response Powell reiterates that his statements are factually true.
My statements are factual, and I stand by them. I had no intent to damage the company—only to explain my actions. If the truth is damaging to the company, take its revelation as an opportunity to fix the problem, make things right by the community and rebuild trust. I’m not a Ripple board member. I have neither revealed insider information, nor used it to sabotage Ripple Labs.
Throughout the remainder of his response, Jesse Powell abandons formalities and levies an emotional rant against Ripple Labs. Referring to former employees who have parted with the company, Powell infers that Ripple has used legal pressure to silence the company’s critics.
After all, this tactic has worked quite well in the past, hasn’t it? I mean—we’ve had several people leave the company and board and we haven’t heard a peep from them. This is one example of the kind of behavior that has me questioning the management of the company.
Clearly, Powell has violated the cease and desist letter’s demands to refrain from making further disparaging remarks against the company.
One of the major controversies alleged in Ripple’s letter to Powell was that the Kraken CEO had secretly conspired with Jed McCaleb to damage Ripple by coordinating McCaleb’s XRP liquidation and Powell’s resignation. The letter claims that McCaleb and Powell remained close friends and associates even after McCaleb parted with Ripple. However, referring to these claims, Powell declares:
Wild paranoia and irrational conspiracy theories here. I certainly did not coordinate my resignation with Jed’s XRP sell-off. Again, if either of these events is damaging to the company, it’s the company’s fault. Is it too much to imagine that the series of events that led Jed to sell his XRP have also contributed to my resignation? Maybe the sell-off was the last straw for me.
Powell argues that when the Ripple board was forced to choose between co-founders Jed McCaleb and Chris Larsen due to irreconcilable differences, he made the difficult decision to side with Larsen in what he believed were the best interests of the company.
In fact, my relationship with Jed has been almost non-existent since the board opted to keep Chris on rather than Jed, when Jed forced us to decide between them. I’m sure Chris does not appreciate how personally difficult that decision was for me, but I did what I thought at the time was in the best interest of the company. It certainly wasn’t in the best interest of my friendship with Jed.
Later on he reiterates this point.
I sacrificed my friendship with Jed when I chose not to fire Chris. I have always acted in the best interest of the company, even to my own personal detriment. If I was trying to broker a deal between RL and Jed, it’s because I thought it was in the best interest of the company. Yes, I believed that a sell-off would jeopardize a financing round and I strongly encouraged Chris and the board to work out a deal. I wasn’t making a threat—that was just the reality.
I don’t have any special relationship with Jed, I don’t know what he’s working on, I’m not involved in what he’s working on, and I’m unaware of any Ripple fork or competing effort. We’re not colluding and I’m not trying to attack or harm Ripple Labs.
Ripple claims Jesse Powell’s alleged friendship with Jed McCaleb was instrumental in his supposed decision to sabotage the company. They argue that his comments about the co-founders’ decision to allocate a large portion of XRP to themselves and not return them to the company are false. Ripple states that Chris Larsen and fellow co-founder Arthur Britto made plans to return their XRP to the company. Powell disputes this, alleging that when Larsen and Britto claim they will return their XRP to the company they mean to do so on a temporary–not permanent–basis.
Jed and I got started with Ripple in September of 2011. I believe Chris joined sometime around August of 2012. Prior to Chris joining, the company had two investors. I’m not sure when Jed and Chris allocated themselves the XRP but they say it was before incorporation, which occurred in September of 2012. In my view, the two stole company assets when they took the XRP without approval of the early investors, and without sharing the allocation amongst the other shareholders. Whatever coin they allocated themselves prior to incorporation of Opencoin, Inc. [Author’s Note: Opencoin later became Ripple], I believe was abandoned. There had been several ledger resets between Sep 2012 and Dec 2012, and a new version of Ripple emerged, built by Opencoin, Inc., clearly with company resources. If Jed and Chris have continued to run the old software to preserve their Betacoin, I have no problem. Unfortunately, Jed and Chris again allocated themselves XRP in December of 2012. That XRP unquestionably was not gifted by Jed and Chris to the company, it did not exist prior to the company’s existence, and it was generated with company resources. That XRP has always belonged to the company and it was taken from the company by Jed and Chris. I’m asking them to return what they’ve stolen.
He continues this train of thought in an earlier part of the statement.
My understanding of Chris’ position is that he is only willing to lend back his XRP to Ripple Labs, and only a portion of it….My proposal was to completely return all founder XRP remaining, with no prospect of ever having it given back….Chris, will you give your XRP back to the Ripple Labs and commit to not taking any XRP allocations in the future? The temporary return/lockup proposal is inadequate because it does not solve two fundamental problems: It was improper, and possibly illegal, for the founders to take this allocation in the first place, and eventually the community, company and investors will have to worry about a founder sell-off again.
I think it’s great that Chris and Arthur are willing to lock up their XRP regardless of what Jed does but this still falls short. Chris (at least) needs to return his XRP to the company permanently, not in a lockup. That asset belongs to the company. There may be some argument for Arthur to keep his XRP.
Ripple seeks to replace traditional payment processing methods. To do this, it must gain mainstream acceptance. However, this public airing of the company’s dirty laundry will hurt their effort. They attempted to quiet things down by ordering former board member Jesse Powell to cease and desist his disparaging remarks about the company, but this plan backfired as Powell responded publicly to the letter and launched several assaults on the integrity of the company and its management.
It is doubtful that Ripple Labs will let Jesse Powell’s comments slide by without response. At best, it seems that they will wage a war of words in the press. At worst, the two factions could engage in a messy legal battle that would clearly be a lose-lose situation for all involved.
Ripple investors need to strap in tight because it appears that the company will be travelling on a rocky road for the near future.
Last modified: June 14, 2020 9:29 AM UTC