Last week, a federal judge ordered Ripple to pay $125 million after ruling that the company violated federal securities laws with its direct sales of XRP to institutional clients. This amount is a fraction of the $2 billion the SEC originally sought and brings the nearly four-year-long case closer to an end—though the final chapter may not yet be written.
The Case So Far
The SEC filed a lawsuit against Ripple in December 2020, alleging that the company’s sale of XRP constituted an unregistered securities offering. The case has been one of the longest and most contentious between the SEC and a crypto company, outlasting previous cases against companies like Kik and Telegram, which settled relatively quickly. Ripple chose to fight the charges, resulting in a protracted legal battle that has been closely watched by the entire crypto industry.
In July 2023, Judge Analisa Torres ruled that while Ripple violated federal securities laws in its direct sales of XRP to institutional clients, the company did not break any laws in its sales to exchanges, which then sold the tokens to retail clients. The SEC attempted to appeal parts of this decision but was denied. In October, the SEC also dropped charges against Ripple’s CEO Brad Garlinghouse and Chairman Chris Larsen. The latest ruling imposes a $125 million fine on Ripple and an injunction against future violations.
Ripple’s Victory and the SEC’s Response
Although both Ripple and the SEC can claim some level of victory, Ripple clearly came out ahead in this case. The $125 million fine is significantly lower than the $2 billion the SEC sought, and Ripple’s overall business practices—especially its sales to retail clients—were largely vindicated.
An SEC spokesperson claimed victory by highlighting the civil penalties imposed on Ripple, stating that the ruling reflects the seriousness of Ripple’s violations. However, the SEC has not indicated whether it will appeal the July 2023 ruling.
Ripple’s Chief Legal Officer, Stuart Alderoty, argued that the ruling is a significant victory not just for Ripple but for the crypto industry as a whole. He emphasized that the judge rejected the SEC’s broader claims and noted that there were no allegations of fraud, market manipulation, or misappropriation of funds in this case.
The Impact on the Crypto Industry
The ruling on secondary market trades is particularly significant. Patrick Daugherty, head of Foley and Lardner’s digital assets practice, pointed out that this aspect of the ruling is a key loss for the SEC, as it weakens the agency’s position in other cases where tokens have been trading on exchanges for years.
The penalties Ripple faces are relatively straightforward. Ripple can easily cover the $125 million fine, and the judge did not find that institutional investors were specifically harmed by Ripple’s actions. This outcome may set a challenging precedent for the SEC in future cases, making it harder for the regulator to argue for large penalties in similar situations.
The injunction imposed by the judge is also unlikely to have a significant impact on Ripple’s operations. Alderoty described it as a standard “obey the law” injunction, which is procedural rather than punitive.
Will There Be an Appeal?
If the SEC chooses to appeal—or if Ripple decides to challenge its loss in the institutional sales aspect—both parties have 60 days from the ruling's publication to file a notice. However, it would be difficult for the SEC to appeal the remedies ruling, which includes the $125 million fine.
Alderoty advised against an appeal, emphasizing the finality of the judgment. He suggested that even if the SEC does appeal, it is unlikely to change the outcome significantly.
However, some legal experts believe the SEC might still appeal the ruling on secondary market trades, as it sets a challenging precedent for the regulator’s ongoing strategy of classifying all tokens as securities.
The Broader Implications
While this case is a major victory for Ripple, its broader implications for the crypto industry remain unclear. Christopher LaVigne, a partner at Withers, noted that the piecemeal nature of court decisions is not providing the clarity that companies in the industry have been seeking. The rulings so far have not moved the needle significantly, leaving many questions unanswered.
As the crypto industry continues to navigate an uncertain regulatory landscape, the Ripple case serves as both a cautionary tale and a potential roadmap for other companies facing similar challenges. Whether this case will ultimately lead to clearer guidelines for the industry remains to be seen.
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