The US-based blockchain company Ripple has finally put an end to a long-running case with the country’s Securities and Exchange Commission (SEC) that accused them of violating securities laws with the sale of its XRP token.
Judge Analisa Torres from the United States Southern District of New York imposed a fine of $125 million on the company for selling unregistered assets as part of 1,278 transactions with institutional investors.
However, when it comes to retail investors, the judge ruled that the company did not breach any laws.
The fine, although not small, can be viewed as a mere slap in the wrist for Ripple considering that the SEC was looking for a $2 billion penalty. The judge’s favorable view of its security offerings to retail investors played a big part in reducing that expected payout.
However, the court did assess that there is a “reasonable probability” that Ripple could break the law in the future when selling its XRP token to the general public. As a result, an injunction was issued by Judge Torres that forces Ripple to register any securities they intend to sell to raise capital for their venture in the future.
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“Rather, the Court finds that Ripple’s willingness to push the boundaries of the Order evinces a likelihood that it will eventually (if it has not already) cross the line,” the 4-page sentencing document reads.
“On balance, the Court finds that there is a reasonable probability of future violations, meriting the issuance of an injunction,” Judge Torres further argued.
XRP Token Jumps by Nearly 20% Following The News
Investors have welcomed the news as it puts an end to a long-standing case that could have had severe consequences for the crypto industry if retail asset sales through exchanges were deemed illegal.
In the past 24 hours, the XRP token has surged 18.7% at a point when crypto assets are experiencing significant weakness. Ripple’s executives celebrated the outcome of the case as a win as well.
Brad Garlinghouse, the Chief Executive Officer of Ripple, said in an X post: “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.”
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…
— Brad Garlinghouse (@bgarlinghouse) August 7, 2024
Meanwhile, Stuart Alderoty, the crypto company’s Chief Legal Officer, also mentioned that the case upheld Ripple’s value proposition as a company as it did not involve any allegations of “fraud or intentional wrongdoing” while no financial harm was caused to the SEC’s alleged victims.
“We respect the $125M fine the Court has imposed for certain historic sales to sophisticated third parties,” Alderoty emphasized.
Ripple is Not Fully Out of the Woods Yet as SEC Could Appeal the Ruling
The SEC will likely appeal to the Judge’s 2023 ruling concerning the sale of assets to retail investors through crypto exchanges. This is a centerpiece of the case as the Judge found that Ripple did not break any laws in doing so.
However, if an appeals court finds merits to turn over that ruling, Ripple could still be liable for that part of the complaint and could be subject to hefty penalties as the number of investors involved would be much higher.
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This case dates back to 2020 when the SEC charged both the company and its executives with conducting sales of unregistered assets in the United States. The agency argued back then that $1.3 billion was raised as part of these transactions involving the sale of XRP – the Ripple blockchain’s native token.
The complaint mentioned both Garlinghouse and the other co-founder of the blockchain company, Christian Larsen, who stepped down as the Chief Executive Officer of the company in November 2016.
The company’s case looked at transactions from 2013 when the company raised capital through the sale of XRP.
In this regard, the SEC claimed that “the defendants failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of the federal securities laws”.
“We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system,” the agency’s press release from 2020 reads.
Ripple Executives Are No Longer Liable
The crypto community considers this outcome a win for the industry. However, industry watchers did note that the SEC’s intention to appeal the 2023 verdict poses a risk to Ripple as a setback could once again expose the firm to hundreds of millions in penalties for disgorgement and prejudgment interest.
In October 2023, the agency decided to drop its civil case against the two executives with prejudice, meaning that it would no longer file similar complaints in the future. However, they opted to keep moving forward with the case against Ripple as an organization.
The civil case’s dismissal has the goal of shortening the period that the SEC has to wait to file an appeal as they were able to file a motion against Judge Torres’s 2023 ruling right after it came out. Otherwise, the SEC would have been forced to wait until today’s sentencing to proceed.
The SEC Keeps Suing Crypto Companies Despite Making Some Progress
The Ripple case is one of the most high-profile cases the SEC has brought against a crypto firm in the past few years and it provided evidence of what the current administration’s view was about how the sale of digital assets should be treated.
In July 2024, the agency brought up charges against Consensys Software for engaging in the sale of unregistered securities through their MetaMask Staking and MetaMask Swap services.
Meanwhile, earlier in July, another case was presented against TradeStation as the broker allegedly broke US securities laws for failing to register a crypto lending product. TradeStation paid a $1.5 million fine in that particular case.
Similarly, Coinbase faced a setback in a court case involving the sale of staking products through its crypto brokerage platform. These products were also not adequately registered with the SEC according to the Judge’s findings.
Despite these hostile actions against multiple crypto companies, the SEC did approve recently two passively managed investment vehicles linked to Bitcoin (BTC) and Ether (ETH) that provided some glimpse of hope to the industry about the possibility of engaging in constructive conversations with the agency to keep making digital assets available to mainstream investors.