SEC Drops Lawsuit Against Ripple Labs Executives

Not long ago, we reported on a court ruling that granted co-founders of cryptocurrency Ripple (known as XRP) relief from a lawsuit over their issuance of XRP tokens. In late 2020, the US Securities and Exchange Commission filed a lawsuit against Ripple Labs executives, claiming that they violated securities laws by selling “unregistered securities” in the form of XRP. In total, the lawsuit claimed more than $1.3 billion was raised by Ripple executives without anything being registered with the SEC.

This past July, a District Court judge partially ruled against the SEC claiming that because XRP tokens are cryptocurrencies they are not classified as “securities” and are therefore not governed by the SEC. In other words, Ripple Labs selling XRP tokens is akin to an online retailer selling consumer goods rather than a brokerage issuing publicly traded securities. In the wake of that ruling the SEC has now backed off even more by dropping their allegations against Chief Executive Brad Garlinghouse and co-founder Chris Larsen for aiding and abetting the sale of unregistered securities.

Ripple On A Winning Streak

In the immediate wake of the recent rulings and announcements, Brad Garlinghouse was quick to release a statement that reads like a victory announcement and indictment of the SEC all at once. In his statement, Garlinghouse said, “Instead of looking for the criminals stealing customer funds on offshore exchanges that were courting political favor, the SEC went after the good guys.” This was a not-so-subtle shot at the handling of FTX’s Sam Bankman-Fried, who is currently incarcerated and facing numerous charges relating to his company’s dealings with cryptocurrencies. Chris Larsen also released a statement and accused the SEC of trying to “suffocate crypto in America.”

The recent spate of rulings in favor of Ripple Labs is something not many people expected. After all, time and time again we have seen the US legal system deal cryptocurrencies loss after loss to the point where the US is not considered to be an overly friendly place for crypto companies. The SEC may have been dealt a few setbacks, but the case against Ripple Labs is still ongoing even though the company’s leaders were removed from the lawsuit. One of the next steps in the case is for it to be brought before a judge so that an appropriate penalty can be levied against Ripple. There is no timeline for when this will happen, however.

Under the leadership of Gary Gensler, the SEC has now brought suit against the biggest names in the cryptocurrency industry, especially in the United States. While most of these suits have been successful for Gensler and his cohort, the Ripple case is a rare exception. All of the lawsuits filed by the SEC against crypto companies are unique, but what they have in common is that they all exist thanks to the confusing landscape surrounding US securities laws. These laws are dated such that they cannot possibly govern new cryptocurrencies, but at the same time lawmakers are dragging their feet when it comes to drafting new legislation for cryptocurrencies. This means that lawsuits like the one facing Ripple Labs are likely to continue for the foreseeable future and the US will continue to lag when it comes to the adoption of crypto into the financial mainstream.