The US Securities and Exchange Commission (SEC) has dropped its lawsuits against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen. Both executives were accused of supporting the institutional sale of the cryptocurrency XRP, which a court classified as a securities offering.
In December 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple and its two executives. The agency alleged that the company distributed unregistered securities to investors. Ripple fought the SEC lawsuit for two and a half years until a US court issued an initial judgment in July 2023. The court determined that the XRP token itself was not a security, only the offering to institutional investors violated federal laws. The SEC has now voluntarily dropped its lawsuit against Ripple executives Brad Garlinghouse and Chris Larsen, as indicated in a court document.
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Another partial victory for Ripple?
The cryptocurrency industry largely celebrated the court decision in July. The Southern District of New York's district court unequivocally stated that the XRP token itself did not meet the requirements of the Howey Test and, therefore, should not be classified as a security. This dealt a significant blow to SEC Chairman Gary Gensler's position that almost all cryptocurrencies are unregistered securities. The agency's request for an appeal was also rejected by the relevant judge.
However, Ripple was found guilty on one count. While the public offering of the XRP token took place within the legal framework, sales to hedge funds and other institutional investors totaling $728 million violated securities laws. The roles of the two Ripple executives in these token offerings would have been tried before a jury in April 2024. The agency has now discontinued this process voluntarily.
"The SEC made a serious mistake when they personally pursued Brad and Chris, and now they have capitulated and dropped all charges against our executives. This is not an out-of-court settlement. This is an SEC surrender." - Stuart Alderoty, Chief Legal Officer at Ripple
Future milestones for the XRP court proceedings
Instead, the SEC is preparing for the upcoming trial regarding institutional XRP sales. The agency intends to meet with Ripple to establish a timeline for the next steps. The SEC will report to the court by November 9. If there are disputes about the timeline, the court plans to hold a hearing. In the trial, the appropriate measures against Ripple for its securities law violations will be discussed.
According to a legal expert, the discontinuation of the proceedings against the Ripple executives may have been a strategic decision by the SEC. Now, the agency can appeal the Ripple decision much earlier. Otherwise, the SEC would have had to wait until the conclusion of the proceedings against Garlinghouse and Larsen in late spring 2024. An expedited court process is generally welcomed by the industry.
