October 20, 2023

SEC Abandons Charges Against Ripple CEO Garlinghouse and Chairman Larsen

The SEC drops its claims against Ripple's CEO and Chairman related to XRP transactions, opting to focus on the central Ripple case, marking a significant turn in the ongoing legal battle.

The U.S. Securities and Exchange Commission (SEC) has decided to abandon the allegations against Ripple's CEO, Brad Garlinghouse, and Executive Chairman, Chris Larsen, in connection with their involvement in purportedly violating federal securities laws through XRP transactions. As a result, a trial previously scheduled for the next year has been canceled, providing Ripple with another legal victory. This move brings the regulator closer to the possibility of appealing a federal judge's ruling in the overarching case against Ripple.

In a statement released on Thursday, it was disclosed that both parties mutually agreed to dismiss the aiding and abetting charges against the two executives with prejudice, meaning these charges cannot be brought up again. However, the SEC will persist in pursuing its allegations against Ripple, as stated in the filing.

Brad Garlinghouse expressed his views on this development, saying:

"For nearly three years, Chris and I have been subjected to unfounded allegations from a regulatory body with political motivations. Instead of focusing on those who engage in fraudulent activities on offshore exchanges, which are cozying up to political interests, the SEC decided to target individuals who have acted responsibly."

Ripple achieved a significant, albeit partial, victory in July when the presiding judge ruled that the company had not violated federal securities laws when making XRP accessible to retail investors through exchanges. Nevertheless, Judge Analisa Torres also determined that the company had breached federal securities law by directly selling XRP to institutional investors. It is this latter aspect that will remain the subject of discussions between the SEC and Ripple, as mentioned in the recent filing. The dropped charges pertained to institutional sales, which were set to go to trial in April.

The filing also indicates that the SEC and Ripple intend to engage in discussions regarding the appropriate remedies for Ripple's Section 5 violations concerning its Institutional Sales of XRP. An SEC spokesperson refrained from commenting on this development, while a press release from Ripple described the filing as a "surrender" and the initial pursuit as "absurd theatrics."

Earlier in the month, the SEC's attempt to appeal its court loss in the Ripple case, while other issues continued through the trial process, was denied.

The SEC has faced a series of setbacks in its extensive pursuit of crypto firms that it alleges are in violation of securities laws. SEC Chair Gary Gensler has argued that virtually all cryptocurrencies should fall under the category of securities subject to the agency's oversight, but U.S. judges have repeatedly emphasized the complexity of the matter.

In the absence of clear crypto regulatory legislation from Congress in the short term, these ongoing legal battles may ultimately establish the standards by which the U.S. government approaches digital assets.

Meanwhile, Ripple has reported that nearly 90% of its business now originates from outside the United States.

Katherine Kirkpatrick, the chief legal officer for Cboe Digital, speculated in a post on a social media platform that the SEC's decision to drop charges against the individuals might be a strategic legal maneuver. She suggested:

"This means they can proceed to appeal the Ripple decision much sooner – otherwise they would have had to wait until the conclusion of that trial in the late spring."
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