Joseph Grundfest, a former commissioner of the U.S. Securities and Exchange Commission (SEC), reportedly wrote to current commissioner Jay Clayton criticizing the lawsuit and noting it could see investors suffer “multibillion-dollar-losses.”

As reported, The SEC sued Ripple this week for alleged violations of investor-protection laws when it sold the third-largest cryptocurrency by market cap, XRP. The lawsuit is one of the highest-profile SEC actions against a cryptocurrency firm and came one day before Clayton announced he would resign.

The SEC charged Ripple CEO Brad Garlinghouse and cofounder Chris Larsen with engaging in an illegal securities offering, saying the company sold over 14.6 billion XRP tokens since 2013, worth over $1.3 billion, in an unregistered offering.

The company dispute the claims and plan to fight the lawsuit. Galinghouse said: “they’re wrong in matter of law and fact.” The lawsuit revolves around whether XRP is a security that should have been registered with the SEC. As Ripple did not register XRP as a securities offering, the regulator argues investors did not have adequate information, and as such the defendants had an unfair advantage. It alleges:

Ripple created an information vacuum such that Ripple and the two insiders with the most control over it—Larsen and Garlinghouse—could sell XRP into a market that possessed only the information [the] defendants chose to share about Ripple and XRP.

In the letter, The Block reports, Grundfest said that “no pressing reason compels immediate enforcement actions,” and added the views of the soon-incoming Administration could differ “substantially from current perspectives.” He added that the lawsuit could have a negative impact on XRP holders, which he dubbed “innocent third-parties.”

Grundfest pointed out intermediaries will crease transacting in the cryptocurrency because of the legal risks associated, resulting in reduced liquidity that could see XRP’s value decline. He added:

But simply initiating the action will impose substantial harm on innocent holders of XRP, regardless of the ultimate resolution.

Several cryptocurrency exchanges have already halted XRP trading, and market makers cut off liquidity support for it. As reported Bitwise Asset Management’s Bitwise 10 Crypto Index Fund (BITW) has liquidated its position in XRP.

Grundtfest reportedly added he is not aware of an instance in which the “simple announcement of a Commission enforcement proceeding has, absent allegations of fraud, misrepresentation, or omission, caused multi-billion-dollar losses to innocent third parties.”

He added XRP and ether should be given the same treatment as the agency hasn’t shown a “material distinction between the operation of Ether and of XRP” relevant to the application of federal securities laws. Since the lawsuit was announced the price of XRP has already plunged by about 40%.

Featured image via Pixabay.