Ripple, the blockchain payments giant, has once again landed in a legal gray zone, this time due to its indirect link to Linqto—a now-collapsed investment platform under scrutiny by U.S. regulators. In a recent statement, Ripple CEO Brad Garlinghouse confirmed that Linqto currently holds 4.7 million Ripple private shares but made it clear that these shares were never sold directly by Ripple.

The situation came to light following a Wall Street Journal investigation that revealed Linqto allegedly violated securities laws. The platform enabled retail investors, many of whom were non-accredited, to buy pre-IPO shares in high-profile startups like Ripple, Circle, and SpaceX through a model that is now under the microscope. This business model relied heavily on the use of Special Purpose Vehicles (SPVs), which allowed investors to buy indirect exposure to shares, rather than holding them outright.

According to the report, some investors were unaware they were purchasing units in an SPV rather than actual equity in the target companies. In many cases, these SPVs bought the shares on the secondary market from early employees or shareholders. Ripple’s CEO emphasized this point in a public statement, noting that Linqto’s 4.7 million Ripple shares were acquired through secondary sales—never directly from Ripple itself.

“What we know from our records is Linqto owns 4.7M shares of Ripple, solely purchased on the secondary market from other Ripple shareholders (never directly from Ripple),” Garlinghouse wrote on X (formerly Twitter).

Garlinghouse added that these shares have appreciated significantly in value, riding the wave of Ripple’s private valuation growth. According to Hiive data, Ripple shares have surged 320% year-over-year and now trade at approximately $91 per share. However, Ripple reportedly blocked Linqto from further secondary market access in 2024 due to “growing skepticism” over its practices.

The controversy deepens when considering that nearly 5,000 retail investors may have purchased Ripple-related SPV units through Linqto without fully understanding the legal or financial structure of their investments. Former U.S. congressional candidate and crypto legal advocate John Deaton called the situation a “regulatory nightmare,” citing the potential for securities law violations and misrepresentation.

Deaton clarified that while investors did not receive direct Ripple shares, their ownership in SPVs still provides claim to underlying assets. He also noted that all known shares of companies like Ripple, Circle, Kraken, Anthropic AI, and SpaceX held through Linqto’s platform are “present and accounted for.” However, he acknowledged a troubling detail—that around 3% of Ripple shares were sold without investor knowledge, though the related funds are reportedly secured.

As Linqto faces ongoing investigations from the U.S. Securities and Exchange Commission (SEC) and Department of Justice (DoJ), investor anxiety is on the rise. Linqto’s business model, which blurred the lines between private equity and retail access, now appears to have placed thousands of unaccredited investors in a precarious legal and financial position.

For Ripple, the challenge is reputational. While the company is not directly implicated in the legal case, its name is now associated with a platform accused of exposing retail investors to unregulated securities trading. Garlinghouse has worked swiftly to distance Ripple from the controversy, reassuring stakeholders that the company had no role in Linqto’s investor offerings or fund management.

Meanwhile, bankruptcy proceedings are expected for Linqto, with Deaton assuring that investors will be treated as priority claimants in any repayment structure. “Investors will come first,” he stated, providing some reassurance to those concerned about the fate of their investments.

The full legal outcome remains to be seen, but the case underscores a critical gap in investor education and oversight within the fast-evolving world of pre-IPO and tokenized equity markets. For now, Ripple continues to navigate the fallout—its shares secure, but its indirect ties to Linqto raising tough questions about transparency and investor protection in crypto’s private markets.