In a significant development, the U.S. Securities and Exchange Commission (SEC) has decided to drop claims against Ripple Labs’ Chief Executive, Brad Garlinghouse, and co-founder, Chris Larsen, in its lawsuit accusing the blockchain company of violating U.S. securities law. This decision was revealed in a court filing in New York on Thursday.
The SEC’s move pertains to the allegations that Garlinghouse and Larsen aided and abetted in the sales of the cryptocurrency XRP, which a judge previously determined constituted unregistered sales of securities. This marks a pivotal turn in the case that began with the SEC’s December 2020 lawsuit, where Ripple was accused of unlawfully raising over $1.3 billion through an unregistered securities offering by selling XRP.
U.S. District Judge Analisa Torres in Manhattan delivered a partial victory for Ripple in July when she ruled that sales of XRP on public exchanges did not qualify as unregistered securities offerings. Subsequently, she dismissed the SEC’s request to appeal that decision. Nevertheless, Torres also sided with the SEC to some extent, affirming that the company’s $728.9 million XRP sales to hedge funds and sophisticated buyers violated the law.
Both Garlinghouse and Larsen, who have been vocal critics of the SEC throughout the proceedings, issued extensive statements accusing the agency of pursuing a political agenda aimed at, in Larsen’s words, “suffocating crypto in America.”
Garlinghouse emphasized, “Instead of seeking out criminals stealing customer funds on offshore exchanges that were seeking political favor, the SEC targeted the good guys,” possibly alluding to Sam Bankman-Fried, the founder of crypto exchange FTX, who is currently on trial for a reported $10 billion fraud. Testimonies in the trial have indicated that some of the funds were used for political donations.
The SEC declined to comment on the recent development. According to court documents, the next phase of the case will involve both parties presenting their arguments on the appropriate penalty for Ripple.
Judge Torres’ ruling in July marked a rare setback in the SEC’s longstanding efforts to regulate the cryptocurrency industry. Under the leadership of SEC Chair Gary Gensler, the agency has pursued legal action against major players like Binance, the world’s largest cryptocurrency platform, and Coinbase, the largest U.S. cryptocurrency platform (COIN.O).