SEC drops claims against Ripple executives in XRP lawsuit

The U.S. Securities and Exchange Commission has made a significant pivot in the ongoing lawsuit against Ripple Labs, opting to drop charges against the company’s CEO, Brad Garlinghouse, and co-founder, Chris Larsen, for their alleged involvement in aiding and abetting the sales of XRP. The SEC had previously contended that these sales constituted unregistered securities offerings, and this abrupt change in stance is sending ripples through the cryptocurrency world.

The lawsuit, initially filed in December 2020, accused Ripple of raising over $1.3 billion through an unregistered securities offering via XRP sales. U.S. District Judge Analisa Torres ruled in July that sales of XRP on public exchanges were not, in fact, unregistered securities offerings, delivering a partial victory to Ripple. She also rejected the SEC’s request to appeal this ruling. However, the SEC managed to secure a victory in the case by demonstrating that Ripple’s $728.9 million XRP sales to hedge funds and other sophisticated investors had indeed violated the law.

The dropped charges against Garlinghouse and Larsen were originally set for trial before a jury. Both executives, who have vocally criticized the SEC throughout the case, released lengthy statements accusing the agency of pursuing a political agenda aimed at “suffocating crypto in America.”

Brad Garlinghouse stated, “Instead of seeking out the criminals siphoning customer funds on offshore exchanges, courting political favor, the SEC went after the good guys.” This appeared to be a veiled reference to Sam Bankman-Fried, the founder of crypto exchange FTX, who is currently on trial for an alleged $10 billion fraud. Testimony during the trial has suggested that some of these funds were used for political donations.

The SEC, in response, declined to comment on the matter, maintaining its stance through silence. The agency’s next step in the case is to work with both parties to determine the appropriate penalties for Ripple.

Judge Analisa Torres’ ruling in July marked a rare setback in the SEC’s ongoing efforts to regulate the cryptocurrency industry. Under the leadership of SEC Chair Gary Gensler, the agency has initiated lawsuits against Binance, the world’s largest cryptocurrency platform, and Coinbase, the largest U.S. cryptocurrency platform, asserting that many digital assets fall under the category of securities and thus fall within the agency’s regulatory purview.