Ripple Share Sales Spark Legal Battle: Linqto Accused of Fraud and XRP’s Market Stirs

• Gene Zawrotny, a former executive, is suing Linqto for fraud, market manipulation, and other claims.

• He alleges that Linqto inflated its user base, engaged in insider trading, and manipulated share prices.

Gene Zawrotny, formerly the Chief Revenue Officer at Delaware-based investment firm Linqto, has filed a lawsuit against the company and two of its executives. The lawsuit was filed on 7th October 2024, in Santa Clara County, California, where Linqto was accused of fraud, market manipulation, and other misconduct. Even though the case emerged several weeks ago, it has only come to the limelight lately, partly thanks to the social platform X and input by XRP community influencer Eri.

As stated by Zawrotny, he was sacked immediately after posing questions about the company’s conformity with legal requirements. He alleges that Linqto conducted itself in a manner that amounted to insider trading, spearheading activities that were prejudicial to its clients. 

Zawrotny also alleges that Linqto made false statements about its user base and employed unlicensed brokers. In particular, he claims that Linqto has 750,000 users, while in fact, it has only 10,000, of which only 30% are accredited investors.

Allegations of Price Manipulation and Compliance Violations

The main complaint against Linqto is about the pricing of its services. Zawrotny’s complaint alleges that the company marked up the share prices above the FINRA recommendations, where the markup should not exceed 150%. 

Linqto is accused of using a proprietary algorithm to raise the share price of every transaction, giving the impression that the stock was in short supply. As alleged in the complaint, this created the appearance to investors that shares were about to be sold out as a result of which an artificial market was created.

The lawsuit also has allegations of how Linqto dodged SEC regulations, with Zawrotny stating that the company’s executives knew this but decided to ignore it. Also, he states that Linqto deceived him with a promise of a good salary and stock options and then fired him only 107 days into the job. Zawrotny argues that these actions were taken to stop his stock options from vesting and to not discuss his compliance issues.

Zawrotny’s Legal Demands

Zawrotny is suing for different kinds of damages in this case. Some of the reliefs he seeks are an injunction, costs of the suit, and punitive costs. Also, he demands both general and special damages stating that Linqto’s actions have affected his career and his financial stability.

Linqto was founded in 2018 and gives its investors a chance to invest in private markets with a minimum investment of $2,500. The company also provides its customers with an opportunity to invest in private companies and even in Ripple’s pre-IPO stock, which was added to the platform last year. 

Linqto has also unveiled plans of accepting XRP as a mode of payment for tokenized private equity at the same time that XRP has been ruled as not being a security. In this case, Ripple’s CTO David Schwartz has already confirmed Linqto as a legit firm and the platform used to make investments in startups such as PolySign where David Schwartz is a board member.

This news comes as Linqto recently pulled out of its plan to go public through a merger with Blockchain Coinvestors Acquisition Corp worth $700m, the latter firm confirmed on Monday. Linqto formally terminated the Business Combination Agreement on September 26 by providing the termination notice that took effect on the same day.