Ripple CEO Testifies as Linqto Files for Bankruptcy Amid Crypto Regulation Push

Ripple, a prominent blockchain company, is currently under scrutiny from two different angles. CEO Brad Garlinghouse is set to testify before the Senate Banking Committee in support of clearer crypto regulation, while investment platform Linqto, which holds 4.7 million Ripple shares, has filed for Chapter 11 bankruptcy. These simultaneous developments highlight Ripple’s growing influence in Washington policy circles and the risks associated with the opaque world of secondary crypto markets.

Linqto’s bankruptcy filing comes at a critical time, as it faces SEC investigations, internal allegations of investor misrepresentation, and broader questions about market structure. This situation raises the stakes in an already pivotal moment for US crypto regulation. The Senate Banking Committee is scheduled to hear from key industry leaders, including Ripple CEO Brad Garlinghouse, Blockchain Association CEO Summer Mersinger, former CFTC Chair Timothy Massad, and Chainalysis CEO Jonathan Levin. Their testimonies will address market structure, consumer protection, innovation, and the US’s global competitiveness in digital finance.

Senators are expected to engage in high-stakes discussions about two landmark bills already circulating through Congress—the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, and the Digital Asset Market Clarity (CLARITY) Act. Both pieces of legislation aim to provide clearer regulatory guardrails for cryptocurrencies and blockchain platforms. The hearing will give the Senate its first major opportunity to signal how it might approach comprehensive crypto legislation after the House moved forward with its own version during what it’s calling “Crypto Week.”

On Monday, the House of Representatives kicked off its legislative focus on crypto with plans to vote on three key bills: The GENIUS Act, which would establish a framework for stablecoins backed by the US dollar; The CLARITY Act, which designates the Commodity Futures Trading Commission (CFTC) as the lead agency for digital commodities while granting the Securities and Exchange Commission (SEC) oversight of crypto-related securities; and a controversial anti-CBDC bill, aimed at halting the development of a US central bank digital currency. The push by Republican leadership to advance this legislation highlights a growing urgency to solidify US dominance in digital asset markets before the 2024 election cycle fully consumes the political landscape.

However, the political backdrop of the hearing is anything but clean. President Donald Trump’s growing involvement in the crypto space has raised eyebrows, especially as lawmakers debate bills that could benefit projects with links to him. Ripple, one of the companies at the center of the crypto lobbying effort, previously donated $5 million worth of XRP to Trump’s inaugural fund. Garlinghouse also attended a White House crypto summit hosted by Trump earlier this year. His appearance before Congress could intensify scrutiny of Ripple’s role in shaping policy. Adding more complexity, Trump and his family are reportedly affiliated with World Liberty Financial, a crypto firm that issued the USD1 stablecoin and played a role in launching Trump’s own meme coin earlier this year. To address potential ethical breaches, Richard Painter, a former White House ethics lawyer, will also testify. His presence signals concerns that regulatory efforts may be influenced by personal or political financial interests, especially as crypto becomes an election talking point.

Despite the political drama, many in the industry view this week’s events as a rare opportunity for progress. Firms want rules that allow them to innovate while maintaining compliance and protecting consumers. Linqto, a prominent private investment platform known for offering fractional shares in pre-IPO companies, has filed for Chapter 11 bankruptcy protection in the US District Court for the Southern District of Texas. The filing follows a wave of federal scrutiny, internal investigations, and public controversies surrounding its handling of investor funds, including its high-profile holdings in Ripple Labs. The bankruptcy, officially submitted on Monday, comes amid mounting concerns over Linqto's regulatory compliance and transparency practices. Although the company controls a substantial holding of 4.7 million Ripple shares—purchased on the secondary market—it has no formal relationship with the blockchain giant, a distinction Ripple CEO Brad Garlinghouse emphasized in a recent statement.

Linqto’s financial troubles first came into public view on June 30 when it was reported that the firm faced multiple federal investigations and was considering bankruptcy. According to internal memos, Linqto allegedly misled customers into believing they owned actual shares in private companies, when they may not have. Worse still, the company may have marketed these investments to unqualified investors in violation of US securities law. One of the most alarming revelations includes an alleged markup scheme by former CEO William Sarris, who reportedly sold Ripple shares to Linqto’s 11,000 users at a markup of over 60%—far beyond the 10% threshold set by the US Securities and Exchange Commission (SEC). That action alone, if confirmed, could represent a clear violation of federal securities laws. A Tuesday court filing indicated that Linqto improperly structured its series LLCs and failed to obtain transfer permissions from issuing companies like Ripple. These issues are now part of an ongoing SEC investigation, which the company acknowledged in bankruptcy court documents. Adding to its legal woes, former Chief Revenue Officer Gene Zawrotny filed a whistleblower lawsuit against Linqto and its former top executives, alleging widespread compliance failures and internal retaliation. The suit specifically names Sarris and former Chief Operating Officer Joe Endoso. Linqto officially closed its investment platform on March 13, effectively halting all revenue-generating operations. According to filings, the company’s liabilities may significantly outweigh its accessible assets, placing investors and creditors in a precarious position. The company’s first bankruptcy hearing is scheduled for Tuesday at 9:00 PM UTC. Witnesses include Chief Restructuring Officer Jeffrey Stein, Epiq Corporate Restructuring’s Kate Mailloux, and Ryan Hamilton, senior vice president for debt advisory at Jefferies. In the lead-up to the hearing, Linqto responded to public speculation about changes to its Ripple share holdings. In a statement published on Monday, the company said: “Contrary to published reports on X, Linqto confirms that Liquidshares’ holdings of Ripple shares remain unchanged, and as confirmed by Ripple last week, Linqto continues to own 4.7 million shares.”

Ripple has been keen to distance itself from the embattled investment firm. In late 2024, Ripple halted Linqto’s access to secondary Ripple shares, reportedly after the Financial Industry Regulatory Authority (FINRA) completed a review of Linqto’s broker-dealer unit, Linqto Capital. Garlinghouse reiterated that Linqto was never authorized to resell or manage Ripple’s shares and had no approval to market them in violation of securities rules. The simultaneous developments of Ripple’s testimony before the Senate and Linqto’s bankruptcy filing underscore the complex and evolving landscape of crypto regulation and the risks inherent in secondary crypto markets. As the industry awaits regulatory clarity, the outcomes of these events will shape the future of digital asset oversight in the US.