Ripple's litigation with the US markets watchdog has been seen as a test case for crypto regulation. Now that the case is over, barring appeals, legal experts doubt its legacy.
Brad Garlinghouse, Ripple's CEO, was in an obvious celebratory mood after the crypto company's lengthy legal battle with the US securities regulator ended last week with relatively light penalties.
The US Securities and Exchange Commission asked Judge Analisa Torres to hit Ripple with a $2 billion penalty for violating securities laws, but she only fined $125 million.
“It's a victory for ripples, industry and the rule of law,” Garlinghouse said Loved it In X after the ruling.
The SEC asked for $2B and the court found that they overplayed their hand and reduced their demand by ~94%. We respect the court's decision and are clear in developing our company. It is a victory for ripples, industry and the rule of law. The SEC's…
— Brad Garlinghouse (@bgarlinghouse) August 7, 2024
The SEC asked for $2B and the court found that they overplayed their hand and reduced their demand by ~94%. We respect the court's decision and are clear in developing our company. It is a victory for ripples, industry and the rule of law. The SEC's…
— Brad Garlinghouse (@bgarlinghouse) August 7, 2024
However, legal experts are not so sure. While many observers A test of whether the SEC's assertion that crypto tokens are securities is true, legal experts say fails to provide that clarity.
Alan Konevsky, executive vice president and chief legal and corporate affairs officer at blockchain company tZero, says it's all about winning the industry “from a public relations perspective, from a legislative lobbying perspective, and from a litigation perspective.” Said News.
Clarity? Not so much.
A test case
Torres ruled that Ripple violated securities laws when it sold its associated XRP token directly to institutional investor caps — at least for now — in a legal battle that began in December 2020.
The SEC sued the company for the first time, alleging that the firm's executives sold XRP without registering the token as an investment contract.
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At the time, the case was the largest the regulator — then chaired by Jay Clayton — had ever brought against a crypto industry defendant.
Many more are to come after the appointment of Gary Gensler as president in 2021 and the collapse of the FTX exchange in 2022 prompting a wave of enforcement actions.
Over the years, the ripple case has been touted as a test case for the industry.
What industry observers know is that whatever the outcome, the Ripple case will echo the SEC's attacks on the likes of Binance, Coinbase and Kraken.
In 2023, the industry celebrated when Torres handed down a partial victory for Ripple.
Although the company violated securities laws when it sold XRP directly to institutional investors, the ruling stated that indirect sales of XRP on retail exchanges were fine.
Torres did not allow the SEC to appeal that point, and last week, she gave Ripple a greatly reduced fine.
The Torres ruling, however, does not set a definitive precedent that will sway judges strongly in favor of these defendants, legal experts say. News.
Terraform Labs
In a separate lawsuit between the SEC and Terraform Labs, for example, Judge Jed Rakoff rejected the Torres distinction between institutional and retail sales.
“Unfortunately, the twin decisions of Ripple and Terraform Labs use different metrics to determine what is and what is not a security, creating more confusion than clarity,” said Arthur Jacoby, a partner at the law firm Herrick Feinstein and a former SEC prosecutor. News.
In the long run, many of the SEC's cases against crypto businesses end up in appellate courts.
Here too judges come up with different rubrics of their own and securities, adding to the confusion.
A Supreme Court case sets a binding precedent, but the US's highest court is selective about what it hears. Even if it chooses to hear the crypto case, that could take years.
Ultimately, courts are no substitute for clear rules written by Congress, Jacoby said.
The crypto industry is busy trying to influence those laws. It collected a A $173 million war chest electing friendly candidates and influencing policy after the new administration comes in after November.
In the meantime, the industry will continue to operate without certainty about its regulatory status, Konevsky said.
“The industry is very good at working in grey,” he said.
“It will have to continue as the courts have not cleared anything.
“In fact, they can make it more confusing.”
Joanna Wright writes about regulation and policy News. Contact her at [email protected].
Related Topics RIPPLE (XRP)Securities and Exchange Commission (SEC)