In December 2020, the U.S. Securities and Exchange Commission (SEC) initiated a significant lawsuit against Ripple Labs, including its executives Bradley Garlinghouse and Christian A. Larsen. The case, centered around allegations that Ripple conducted an unregistered securities offering through its sale of XRP, has been a focal point in the crypto industry, particularly concerning the classification and regulation of cryptocurrencies.
The SEC accused Ripple and its leaders of unlawfully offering and selling securities, violating Section 5 of the Securities Act of 1933. Garlinghouse and Larsen were also charged with aiding and abetting these violations. Ripple countered by asserting that XRP is a currency, not a security, and thus outside the SEC’s jurisdiction. They argued that XRP’s role in their decentralized network and its use in transactions and liquidity for cross-border payments distinguished it from traditional securities.
On 13 July 2023, Judge Analisa Torres of the United States District Court for the Southern District of New York delivered a mixed ruling in the SEC v. Ripple Labs lawsuit. The court partially granted and denied motions from both the SEC and Ripple. The SEC’s motion for summary judgment was granted regarding Institutional Sales but denied for other matters. Conversely, Ripple’s motion was granted concerning Programmatic Sales, Other Distributions, and sales by Larsen and Garlinghouse, but denied for Institutional Sales. Notably, the SEC’s motion for summary judgment on the aiding and abetting claim against Larsen and Garlinghouse was denied.
On 19 October 2023, Ripple announced that its CEO, Brad Garlinghouse, and Executive Chairman, Chris Larsen, were cleared of all SEC allegations, marking a significant retreat by the agency.
In a series of predictions made on 15 December 2023, Ripple’s Chief Legal Officer, Stuart Alderoty, provided insights into the expected trajectory of U.S. cryptocurrency regulation in 2024. He anticipated the conclusion of Ripple’s legal battle with the SEC, continued aggressive enforcement by the SEC, judicial checks on SEC overreach, and legislative paralysis in the U.S. crypto sector.
On 22 December 2023, Stuart Alderoty, Ripple’s Chief Legal Officer, reflected on the lawsuit initiated by the U.S. Securities and Exchange Commission (SEC) against Ripple. He revealed a significant aspect of Ripple’s interaction with the SEC prior to the lawsuit. According to Alderoty, three years ago, the SEC had proposed a settlement to Ripple. This settlement would have involved the SEC publicly declaring XRP as a security, followed by a brief period for the market to adjust and comply with this classification.
Ripple rejected this settlement offer for two key reasons. First, they maintained their stance that XRP is not a security, challenging the SEC’s proposed classification. Second, Alderoty criticized the SEC for not having established a clear regulatory framework for cryptocurrencies, which he implied would have been necessary for any meaningful compliance process.
Alderoty’s statement was emphatic in its criticism of the SEC. He accused the agency of hypocrisy and overreach, suggesting that the lawsuit was less about protecting investors and more about asserting control over the crypto industry. He expressed pride in Ripple’s decision to fight the case, a move that many thought risky or unwise. Alderoty’s remarks underscored Ripple’s commitment to proving that XRP, in its essence, is not a security. He concluded by celebrating Ripple’s victory in the lawsuit, which he viewed as a significant exposure of the SEC’s flawed approach.
