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SEC Dismisses Lawsuit Against Ripple Executives — A Calculated Legal Move?

Last Updated October 20, 2023 11:19 AM
James Morales
Last Updated October 20, 2023 11:19 AM
Key Takeaways
  • The SEC has dropped charges against Ripple’s CEO and a co-founder.
  • Move represents a major retreat for the regulator.
  • For the US crypto sector, Ripple’s victory brings much-needed legal certainty one step closer.

For nearly three years, the US Securities and Exchange Commission (SEC) has been locked in a legal battle with Ripple Labs that has had totemic significance for the American crypto sector. 

Now, after the SEC dropped all charges against Ripple’s CEO, Brad Garlinghouse, and co-founder Chris Larsen, the end may finally be in sight. But what does the regulator’s retreat signal for its wider crusade against the American crypto sector? And could Ripple’s victory really settle the legal status of cryptocurrencies once and for all?

SEC Backs Down Of Crypto Securities Claim

For Garlinghouse and Larsen, the SEC’s October 19 letter to Judge Analisa Torres marks a huge personal vindication. But it also hints at a possible resolution for Ripple itself, implying that the regulator won’t contest the court’s earlier decision that “XRP is not, in and of itself a security.”

Recall that in June, Judge Torres ruled that XRP sales to institutional investors constituted an investment contract, but that sales on exchanges and the use of XRP to pay contracts did not. In other words, Torres deemed that the token could count as a security, but only under specific, limited circumstances. 

After the SEC’s motion for an interlocutory appeal was rejected in October, Ripple’s victory was further cemented. Following that decision, the agency’s only remaining option to revisit the question of XRP’s general securities status was to wait until the case’s conclusion and appeal to a higher court.

However, in Thursday’s letter, the SEC implied that it would seek a resolution in the case, stating that it would meet with Ripple Labs to discuss the appropriate penalty for its institutional XRP sales, deemed in violation of securities law.

Ripple Executives Celebrate “Landmark SEC Surrender”

In a press release  celebrating the SEC’s move to dismiss charges, Ripple called the decision a “stunning capitulation by the government.”

“For nearly three years, Chris and I have been the subject of baseless allegations from a rogue regulator with a political agenda,” said Ripple CEO, Brad Garlinghouse. 

Joining him, co-founder and Executive Chairman Chris Larsen remarked, “We are legally vindicated and personally redeemed in our battle against a troubling attempt to abuse the rules in order to advance a political agenda to suffocate crypto in America.”

He went on to condemn “abuse by the administrative state,” alleging that the case was orchestrated by “politically connected special interests […] in an attempt to ruin us personally and destroy a company so many have worked so hard, for so long to build.”

One Battle Is Over But The War Rages On

While the SEC’s retreat in the Ripple case closes an important chapter in American legal history, it is far from conclusive.

For now, Judge Torres has set a precedent, considering crypto tokens as securities under specific contexts, laying the groundwork for a more comprehensive legal doctrine that could potentially apply to tokens other than XRP.

However, considering the sheer diversity of cryptocurrencies available, and the many ways to buy, sell, swap, and stake them, the legal clarity crypto firms have long called for could still be some way off.

What’s more, the SEC remains embroiled in ongoing litigation accusing multiple crypto platforms of selling unregistered securities. Its decision to drop charges against Garlinghouse and Larsen could therefore represent a tactical retreat in order to focus its resources on other cases, where it may stand a better chance of winning.

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