Since the end of 2020, the crypto company Ripple has been involved in a lawsuit with the US Securities and Exchange Commission (SEC) for offering an unregistered security in the form of the cryptocurrency XRP. After some setbacks in court, the SEC reduced its demand from $2 billion to $103 million.
In December 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple and two of its executives. The agency accused the company of distributing unregistered securities to investors. Ripple fought the SEC's lawsuit for two and a half years, until a U.S. court issued an initial ruling in July 2023. The court ruled that the XRP token itself was not a security, but that the offering to institutional investors violated federal law. The SEC ultimately dropped its case against Ripple executives Brad Garlinghouse and Chris Larsen. With the reduced penalties, the SEC may be preparing for a final settlement with Ripple.
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Settlement demand reduced from 2 billion to 103 million
The SEC had originally demanded that Ripple pay approximately $2 billion in reimbursements, prejudgment interest, and civil penalties. Last week, Ripple finally responded that a penalty of ten million USD would be appropriate. This proposal followed a $4.47 billion settlement between Terraform Labs, the development team behind the failed Terra/Luna construct. Ten million of the defendant's gross revenues falls within the range of 0.6% to 1.8%. These are the amounts that the agency typically seeks.
The next day, the SEC filed a countersuit with the court. The agency denied any similarity to the Terraform case because the Terra/Luna developers had already filed for bankruptcy. The complete shutdown of the company significantly influenced the SEC's decision. In contrast, Ripple is demonstrably still operational and has not agreed to any such concessions. A reduced penalty of $102.6 million remains necessary to "deter future misconduct in the crypto industry."
Is a settlement in the SEC vs. Ripple case imminent?
Accepting the settlement would mean immediate financial relief for Ripple. According to CEO Brad Garlinghouse, the company has spent as much as $200 million in legal fees. Prolonging the litigation would be costly and the outcome uncertain. On the other hand, the legal status of XRP as a security would still remain unclear. A clear court ruling would be more beneficial for the crypto industry as a whole. After all, the SEC is involved in various lawsuits with other crypto companies.
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