The Securities and Exchange Commission asked a federal judge in New York to dismiss its case against crypto company Ripple’s co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse.
The SEC and Ripple intend to meet about a briefing schedule for discussing “what remedies are proper against Ripple” for its violations tied to institutional sales of the XRP token, agency attorneys wrote Thursday.
The SEC had accused Larsen and Garlinghouse of misleading investors in XRP by selling more than $1 billion of the virtual coins without registering them. US District Judge Analisa Torres in July ruled that XRP was a security when sold directly to institutions but not when offered to the public on exchanges.
Torres this month denied a bid by the SEC for a quick appeal of her judgment. The Ripple case has become emblematic of the SEC’s argument that most digital tokens are securities that fall under its regulatory purview, a position disputed by much of the crypto community in the US.
Case Strategy
Bloomberg Intelligence analyst Elliott Stein said the SEC’s latest move allows the agency to appeal the parts of the case it lost sooner than if it went to trial against the individuals. He said the regulator likely “wanted to avoid bad facts coming out at trial of the individuals that could jeopardize the win the SEC got on direct institutional sales.”
Ripple said in a statement that the regulator’s filing is a “stunning capitulation by the government.” Stuart Alderoty, the company’s chief legal officer, said on X, the platform formerly known as Twitter: “This is not a settlement. This is a surrender by the SEC.”
The agency likely requested the dismissal of the case against the executives partly “to avoid delaying the appeal on the SEC’s claims against Ripple and the executives that were rejected by Judge Torres on summary judgment,” said Christian Schultz, a former SEC attorney who’s now a partner at Arnold & Porter.
“I welcome an appeal,” Garlinghouse said in an interview. “We have demonstrated the conviction and courage to continue to fight this.”
XRP climbed about 3% to trade at nearly 52 cents as of 10:26 a.m. in Singapore on Friday.
Fewer Lawyers
The SEC’s latest move may mean it no longer has to contend with counsel for Garlinghouse and Larsen, enabling the regulator to more easily focus on appealing Torres’ ruling.
“They only have to deal with one set of lawyers now,” said Anthony Tu-Sekine, head of the blockchain and cryptocurrency group at law firm Seward & Kissel.
The SEC under Chair Gary Gensler has taken a hard stance on crypto, claiming many products should be registered with the agency and moving forward with numerous enforcement actions against industry players.
The pace of actions sped up in the wake of last year’s market rout and the collapse of FTX, with the SEC suing market leaders Coinbase Global Inc. and Binance Holdings Ltd., among others.
The industry has responded by claiming the SEC is overreaching, a view that has been bolstered by recent rulings favoring crypto firms in suits involving the regulator, including July’s Ripple decision.
Another setback for the SEC came when when an appeals court overturned its decision to block Grayscale Investments LLC’s proposed spot Bitcoin exchange-traded fund. The SEC last week said it won’t appeal that decision.
--With assistance from Hannah Miller.
(Updates with comment from Garlinghouse in the eighth paragraph.)
Author: Sabrina Willmer, Allyson Versprille and Olga Kharif
