Three years after the U.S. Securities and Exchange Commission (SEC) filed a surprise lawsuit against Ripple, its co-founder Christian Larsen, and CEO Brad Garlinghouse, Ripple has come out on top three times, and the lawsuit could soon come to an end.
A new part of the story has been revealed, courtesy of Ripple’s Chief Legal Officer (CLO), Stuart Alderoty. Alderoty revealed a pre-lawsuit settlement offer from the SEC that casts a stark light on the agency’s tangled approach to crypto regulation.
Before the SEC sued Ripple, Chris and Brad (3 yrs ago today) they offered us the following settlement: the SEC would announce to the market that XRP is a security and the market would be given a short window to “come into compliance.” We said no because: (1) XRP is not a…
— Stuart Alderoty (@s_alderoty) December 22, 2023
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The XRP Lawsuit
In December 2020, the SEC alleged that Ripple sold over $1.3 billion in unregistered security assets with the sales of XRP from 2013. However, Judge Analisa Torres dismissed this in July, ruling that only institutional sales of XRP can be counted as security offerings.
The SEC attempted to keep the fight going with an interlocutory appeal. However, this was denied by Judge Torres in October.
That same month, the SEC also dropped its charges against Garlinghouse and Larsen for aiding and abetting the sales of XRP by the cross-border payments firm.
The lawsuit is now in the remedies phase where both parties are discussing a potential settlement amount for the institutional sales of XRP.
A Controversial Settlement Offer
According to Alderoty’s recent revelation, before the lawsuit commenced, the SEC presented Ripple with a peculiar proposal. The agency wanted Ripple to publicly declare XRP a security and offer a narrow window for market actors to “come into compliance.”
The SEC presented this offer, despite the longstanding concerns from crypto businesses about applying traditional securities laws to these novel assets.
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— TimesTabloid (@TimesTabloid1) July 15, 2023
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Alderoty’s revelation highlights the SEC’s lack of a dedicated crypto regulatory framework, forcing companies to operate in a gray area. Meanwhile, the enforcement-first approach, typified by legal battles against Coinbase, Binance, and more, has sent mixed signals and stifled innovation.
However, amid the uncertainty, the U.S. legal system has offered glimmers of hope, a judge once called the SEC’s strategies arbitrary and capricious. The has lost multiple times in different crypto-related lawsuits.
The Ripple vs. SEC saga isn’t just about one company. The outcome of this lawsuit will have massive implications for the crypto market. The lawsuit has also exposed the SEC for its wrong regulatory practices.
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