The Securities and Exchange Commission and Ripple Labs have filed a settlement of the lawsuit the regulator brought against the crypto company and two of its leaders in 2020, in which it said the company and its leaders had illegally profited from sales of the crypto token XRP.
In the agreement filed Thursday, the parties agreed that Ripple will pay $50 million to the SEC — a fraction of the $2 billion the SEC originally asked for — and get the other $75 million in escrow back. The settlement also lifted the requirement that Ripple obey securities law.
In response to a request for comment, a Ripple spokeswoman pointed to a March 19
Garlinghouse and Larsen did not deny or provide evidence to counter those claims. Instead, they hired lawyers who argued that the alt coin they created, XRP, is not a security and therefore not under the SEC's jurisdiction.
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People on both sides of the question of whether cryptocurrencies should be regulated as securities expressed dissatisfaction with the outcome of this case.
"This is not a settlement I can support," SEC Commissioner Caroline A. Crenshaw said in a statement. "This settlement, alongside the programmatic disassembly of the SEC's crypto enforcement program, does a tremendous disservice to the investing public and undermines the court's role in interpreting our securities laws."
The settlement weakens the court's order by lessening the penalty and the injunction to obey the Securities Act, she said.
"If Ripple decides tomorrow to sell unregistered XRP tokens to institutional investors — in plain defiance of the court's order — this Commission will do absolutely nothing about it," Crenshaw said. "There will be no enforcement of the law. The hundreds of hours spent by the court in this matter will be rendered meaningless. And the court's decision will be effectively vacated."
The settlement also undercuts the SEC and its enforcement program, she said.
"We are today accepting a diluted settlement, that erases the investor protections we already won, based on a non-existent framework that may or may not come to fruition potentially years from now, on the basis that the current framework in place — of applying the facts to the law — was not industry or innovation-friendly," Crenshaw said. She also questioned how investors will get the information they need.
Industry participants also expressed disappointment. "This settlement did nothing to bring clarity to the crypto-token world," said Donald J. Patterson, vice president of AI/ML at LedgerLink.ai, a distributed ledger technology company, in
The settlement "ends a long-running legal saga and maybe signals a friendlier stance toward crypto innovation," Patterson said. "Ripple gets closure and the crypto market dodges a harsh precedent."
But the settlement diminishes legal consistency, investor protection and the SEC's credibility, he said.
"Letting Ripple off the hook after acknowledging XRP's securities-like qualities is hardly a victory for the rule of law or the nurturing of open markets," Patterson said. "Markets and innovation benefit from clear, consistent regulation, not what we got today."
Marc Fagel, lecturer at Stanford Law School, retired partner at Gibson Dunn and former SEC regional director, also lamented this apparent abandonment of the SEC's original case.
"This is entirely unprecedented," Fagel said. "Having already walked away from multiple pending crypto cases, the SEC is going a step further, actually walking back a judicial victory. It's clear the SEC is abdicating any responsibility over crypto. There are arguments for putting the responsibility on Congress, but that leaves investors in the lurch pending congressional action. The SEC has suggested it would still play a role in outright fraud cases; but if they're saying securities regulations don't apply to crypto trading, that seems legally inconsistent and somewhat nonsensical."
