The long-standing legal battle between Ripple Labs Inc. and the United States Securities and Exchange Commission (U.S SEC) over the status of XRP has finally come to an end. The conclusion of this lawsuit, which has been closely monitored by investors, regulators, and the broader crypto community, has significant implications for Ripple, XRP and the future of cryptoassets in the United States and, perhaps, globally.
Background of the Ripple-SEC lawsuit
The U.S SEC initiated the lawsuit against Ripple Labs in December 2020, alleging that the company and its executives conducted an unregistered securities offering by selling XRP tokens worth about $1.3 billion to investors. The SEC argued that XRP should be classified as a security, which would subject it to stringent regulatory requirements. In other words, the regulatory agency contended that Ripple’s sales of XRP tokens violated federal securities law.
On the other hand, Ripple countered by asserting that XRP is a digital currency similar to bitcoin (BTC) and Ethereum (ETH), which are not considered securities. Ripple’s defense centered around the argument that XRP does not meet the Howey Test criteria for being classified as a security. The Howey Test is used to determine whether a transaction qualifies as an investment contract.
Over the course of the lawsuit, several key developments occurred. Ripple achieved several procedural victories early in the case, including gaining access to internal U.S SEC documents—Bill Hinman speech drafts. These documents were crucial for Ripple’s defense, as they provided insight into the U.S SEC’s internal deliberations and views on cryptocurrencies. The document showed that the U.S SEC viewed ETH as a commodity and not a security.
The Ripple-U.S SEC lawsuit also led to significant market turbulence for the XRP Ledger native token as investor confidence waned significantly. XRP’s price plummeted to new lows as major crypto exchanges either delisted or suspended trading of the cryptoasset.
Read also: XRP Coin soars as Ripple secures major victory in U.S SEC lawsuit. What investors should know.
Court says XRP is not a security
In a landmark ruling in July 2023, the presiding judge in the case Analisa Torres submitted that XRP itself is not a security. The court recognized XRP as a digital currency, distinguishing it from traditional securities subject to U.S SEC regulations.
Moreover, she acknowledged that Ripple’s sales of XRP to institutional investors did violate securities laws. Despite this, the judge noted in her summary judgment that secondary market sales of XRP does not constitute the sale of securities, thereby limiting the scope of the U.S SEC’s claims.
However, this was not the end of the longstanding legal battle as the Gary Gensler-led SEC filed motions seeking penalties for Ripple. The regulatory commission demanded a $2 billion fine from Ripple which prolonged the case as the crypto company countered, noting that the fee was outrageous.
Read also: Coinbase: Impact of the U.S. SEC’s Legal Action; XRP Case
Reactions from Ripple’s Leadership as XRP lawsuit finally ends
After several months of debating the penalty, the court finally concluded the Ripple-U.S SEC case on 7 August 2024 by imposing a $125 million fine on Ripple. This fine was significantly lower than the SEC’s demand for $2 billion. The conclusion marks a huge victory for XRP and Ripple, as it allows the company to continue its operations without the looming threat of the lawsuit.
Ripple’s leadership welcomed the court’s decision. CEO Brad Garlinghouse commented, “The SEC asked for $2B, and the Court reduced their demand by ~94% recognizing that they had overplayed their hand. We respect the Court’s decision and have clarity to continue growing our company. This is a victory for Ripple, the industry and the rule of law. The SEC’s headwinds against the whole of the XRP community are gone.”
Ripple’s chief legal officer added, “A final judgment. The Court rejects the SEC’s suggestion that Ripple acted recklessly and she reminds the SEC that this case did not involve any allegations of fraud or intentional wrongdoing, and no one suffered any financial harm. She rejects the SEC’s absurd demand for $2B in fines and penalties. We respect the $125M fine the Court has imposed for certain historic sales to sophisticated third parties.”
Read also: Ripple and XRP Explained
Ndianabasi Tom A crypto journalist and content writer who has been talking about cryptocurrency and blockchain technology since 2018, Ndianabasi is a Writer at Crypto Asset Buyer (CAB).
