What’s Next in SEC v. Ripple?

Last
week,
a
federal
judge
ruled
that
Ripple
should
pay
$125
million
after
finding
last
year
that
the
company
had
violated
federal
securities
laws
with
its
direct
sales
of
XRP
to
institutional
clients.
It’s
a
fraction
of
the
$2
billion
that
the
SEC
sought,
and
–
for
now
anyway
–
ends
the
long-running
case
that
began
around
Christmas
2020.

You’re
reading
State
of
Crypto,
a
CoinDesk
newsletter
looking
at
the
intersection
of
cryptocurrency
and
government.


Click
here

to
sign
up
for
future
editions.

SEC
v.
Ripple
is
nearly
four
years
old.
Now
it’s
over.
Maybe.

The
case
was
among
the
first
major
protracted
ones
between
the
U.S.
Securities
and
Exchange
Commission
and
a
crypto
industry
player.
Previous
SEC
cases
against
companies
like
Kik
and
Telegram
ended
relatively
quickly.
Ripple
fought,
and
the
results
will
be
dissected
as
the
industry
looks
at
the
SEC’s
ongoing
cases
against
exchanges
and
other
crypto
companies.

To
quickly
recap:
The

SEC
sued
Ripple
in
late
December
2020,
alleging
Ripple
sold
XRP
in
violation
of
securities
laws.
The
suit
worked
its
way
through
the
Southern
District
of
New
York
court
until
July
2023,
when

Judge
Analisa
Torres
ruled
that
while
Ripple
had
violated
federal
securities
laws
in
how
it
sold
XRP
directly
to
institutional
clients,
the
company
hadn’t
violated
any
laws
through
its
selling
XRP
to
exchanges
which
then
made
the
token
available
to
retail
clients.
The
SEC
unsuccessfully
tried
to
file
for
an
interlocutory
appeal
on
portions
of
this
decision,
and
in
October

it
dropped
charges
against
CEO
Brad
Garlinghouse
and
Chairman
Chris
Larsen.
Last
week,

the
judge
ruled
that
Ripple
should
pay
$125
million
in
fines
and
imposed
an
injunction
against
breaking
the
law
in
the
future.

In
fact,
an
SEC
spokesperson
did
claim
victory,
saying
the
ruling
contained
“significant
civil
monetary
policies
totaling
more
than
12
times
the
amount
Ripple
suggested
was
appropriate.”

“As
the
Court
found,
the
fact
that
Ripple
has
shown
a
‘willingness
to
push
the
boundaries
of
the
[Court’s
summary
judgment]
Order
evinces
a
likelihood
that
it
will
eventually
(if
it
has
not
already)
cross
the
line,'”
the
statement
said.
“The
Court
also
addressed
‘the
egregiousness
of
Ripple’s
conduct’
and
noted
that
‘there
is
no
question
that
the
recurrent,
highly
lucrative
violation
of
Section
5
is
a
serious
offense.’
As
court
after
court
has
stated,
the
securities
laws
apply
when
firms
offer
and
sell
investment
contracts,
regardless
of
the
technology
or
labels
that
they
use.”

The
SEC
did
not
say
in
its
statement
if
it
would
appeal
the
July
2023
ruling.

Stuart
Alderoty,
Ripple’s
chief
legal
officer,
said
the
ruling
not
only
signals
the
end
of
the
case,
but
“because
the
judge
continued
to
reject
the
SEC’s
overreach.”

“[The
judge]
reminded
the
SEC,
there
were
no
allegations
of
fraud,
there
were
no
allegations
of
market
manipulation,
no
misappropriation
of
funds,
there
were
no
victims,”
he
said.

Patrick
Daugherty,
who
heads
Foley
and
Lardner’s
digital
assets
practice,
told
CoinDesk
via
email
that
while
both
parties
lost
motions
they
may
want
to
appeal,
the
ruling
on
secondary
trades
–
which
favored
Ripple
–
is
perhaps
the
most
significant.

“It’s
a
key
loss
for
the
SEC
because
it
takes
the
wind
out
of
the
SEC’s
sails
in
other
cases
where
tokens
are
trading
on
exchanges,
especially
if
they’ve
been
trading
there
for
years,”
Daugherty
said.

Another
attorney,
who
asked
not
to
be
named,
said
they
could
see
the
SEC
appealing
that
specific
portion
of
the
July
2023
ruling,
calling
it
a
“significant
loss”
for
the
regulator.

The
penalties
themselves
are
fairly
straightforward.
The
$125
million
is
something
Ripple
can
easily
cover,
Alderoty
said.
Both
he
and
the
attorney
speaking
on
background
noted
that
the
judge
did
not
find
any
of
the
institutional
investors
had
been
specifically
harmed.

“[Judge
Torres]
found
those
parties
got
exactly
what
they
bargained
for,
so
one
kind
of
has
to
ask
why
did
the
SEC
put
Ripple
to
the
task
of
having
to
defend
the
suit
at
a
cost
of
over
$150
million?”
Alderoty
asked.

That
may
lead
to
a
bad
precedent
for
the
SEC,
the
other
attorney
said,
because
it
may
become
more
difficult
for
the
regulator
to
argue
for
large
judgements
tied
to
registration
violations
in
an
effort
to
deter
potential
future
violations.

The
injunction
the
judge
imposed
is
also
unlikely
to
be
a
big
deal.
Alderoty
called
it
an
“obey
the
law
injunction,”
tied
to
the
violation
found
in
selling
XRP
to
institutional
investors.

Foley
and
Lardner’s
Daugherty
said
there’s
“no
real
guidance”
in
the
injunction,
which
is
a
procedural
one
courts
often
impose.
In
this
case,
while
the
judge
said
Ripple’s
On-Demand
Liquidity
service
may
come
close
to
the
line
of
violating
federal
laws,
she
didn’t
rule
that
Ripple
had
violated
the
law
with
it
or
whether
ODL
needed
to
be
exempt
from
registration.

“Ripple
Labs
needs
to
avoid
selling
XRP
the
one
way
that
the
court
held
to
be
unlawful:
as
an
institutional
placement
that
did
not
comply
with
the
requirements
for
an
SEC
registration
exemption,”
he
said.
“This
means
that
Ripple
Labs
can
continue
to
sell
XRP
in
ways
that
do
comply,
either
because
the
offerings
are
off-shore
or
because
private
placement
norms
are
satisfied.”

If
the
SEC
does
choose
to
appeal
–
or,
for
that
matter,
if
Ripple
decides
to
appeal
its
(less
significant)
loss
in
the
institutional
sales
portion
–
it’ll
have
60
days
from
the
ruling’s
publication
to
file
a
notice.

It
would
be
more
difficult
for
the
SEC
to
try
and
appeal
any
of
the
remedies
ruling
(the
ruling
that
contained
the
$125
million
fine).

Alderoty,
the
Ripple
legal
chief,
said
he
wouldn’t
advise
an
appeal
if
he
was
working
with
the
SEC.

“I
think
the
finality
of
the
judgment,
hopefully
people
won’t
be
distracted
by
if
the
SEC
is
going
to
appeal,
what
happens
if
they
appeal,”
he
said.
“…
even
if
they
do
appeal,
I
would
just
tell
everyone
‘take
a
deep
breath.'”

The
attorney
CoinDesk
spoke
to
said
they
would
put
money
on
the
SEC
appealing
anyway,
given
the
ruling
on
secondary
transactions
is
“bad
precedent”
for
the
regulator.
And
while
the
SEC
has
taken
a
few
high-profile
losses
in
court,
it’s
also
had
a
number
of
equally
high-profile
wins,
like
the
LBRY
case.

“I
think
there’s
an
interesting
perception
where
you
talk
to
people
and
they’re
like,
‘oh,
the
SEC
is
just
taking
one
loss
after
the
other,’
and
that’s
not
necessarily
true,
because
there
have
been
wins
in
there
too,”
they
said.
“But
I
do
think
–
their
strategy
of
‘everything
is
a
security’
…
we’re
seeing
major
holes
in
that
strategy
that
clearly
doesn’t
seem
sustainable.”

Should
the
SEC
appeal,
Ripple’s
Alderoty
said
the
regulator
would
have
a
long
road,
given
how
rarely
appeals
courts
overturn
district
court
judges.

While
this
case
so
far
has
been
a
major
win
for
Ripple,
less
clear
is
if
it’s
also
providing
clarity
for
the
crypto
industry
at
large.

Christopher
LaVigne,
a
partner
at
Withers,
said
the
way
court
decisions
have
been
coming
out
piecemeal
are
not
providing
real
clarity
for
the
industry
the
way
companies
have
asked
for.

The
decisions
that
have
come
out
from
the
courts
so
far
haven’t
effectively
moved
the
needle,
he
said.

Regulators
are
telling
companies
to
obey
the
law,
companies
say
they
are
obeying
the
law,
and
a
court
may
rule
in
either
direction.

“Where
does
that
actually
get
you?”
he
asked.
“That’s
pretty
much
the
status
quo.”

Next
week
I’ll
be
at
the
SALT
Wyoming
Symposium,
alongside
my
colleague
Helene
Braun.
Say
hi
if
you’re
around.

If
you’ve
got
thoughts
or
questions
on
what
I
should
discuss
next
week
or
any
other
feedback
you’d
like
to
share,
feel
free
to
email
me
at

nik@coindesk.com
or
find
me
on
Twitter

@nikhileshde.

You
can
also
join
the
group
conversation
on

Telegram.

See
ya’ll
next
week!