The legal battle between Ripple and the SEC continues to unfold with new developments and criticisms of the regulator's stance on the matter. Ripple has continued to defend its position, arguing that XRP is not a security and that the SEC has overstepped its regulatory authority. Meanwhile, the SEC has maintained that XRP is a security and that Ripple violated securities laws by selling it to investors.
Ripple vs. SEC lawsuit timeline
- December 21, 2020: The SEC filed a lawsuit against two executives of Ripple Labs and the company itself. Ripple CEO Brad Garlinghouse declared to defend themselves in the court case.
- January 1, 2021: A group of XRP holders led by Rhode Island attorney John E. Deaton struck back at the agency. Ripple argues that XRP is not a security and that the SEC has engaged in regulatory overreach.
- January, 2021: major cryptocurrency exchanges, such as Coinbase and Bitstamp, delisted XRP from their platforms, citing the potential regulatory risk.
- March 8, 2021: The SEC responded by requesting the judge for a hearing immediately.
- March 22, 2021: The SEC was told that the XRP token has a currency value and utility, distinguishing it from BTC and ETH by Judge Netburn.
- April 13, 2021: The Token Safe Harbor Proposal 2.0 was published by Hester M. Peirce (SEC Commissioner) to offer a three-year grace period for developers to understand their participation in the decentralized networks concerning exemption from the securities law.
- June 14, 2021: The court extended the SEC’s deadline for disclosing its internal crypto trading policies to August 31, 2021.
- August 31, 2021: Ripple filed a motion requesting SEC to disclose its internal crypto trading policies.
- January 24, 2022: Netburn has granted the SEC until Feb. 17 to appeal her earlier decision that the defendant Ripple Labs provide over some sensitive government documents in the SEC’s case alleging that the XRP coin is unregistered security.
- September, 2022: Both, SEC and Ripple filed motions for summary judgment – meaning each side declares that they have arguments that can win the case without a trial.
- November 7, 2022: LBRY blockchain loses a similar case against SEC LBRY token is classified as a security. XRP plummeted.
- November 30, 2022: SEC and Ripple send their final submissions to the summary judgment motions. Ripple CLO Stuart Alderoty claimed that the SEC was overstepping its legal boundaries and attempting to expand its jurisdiction
- January 2023: Numerous organizations, including Coinbase, have submitted amicus briefs in support of Ripple. A total of 16 briefs have been filed, including those from crypto advocacy groups like the Chamber of Digital Commerce and the Blockchain Association.
Ripple CLO: Get Out Of The USA.
Stuart Alderoty, chief legal officer (CLO) at Ripple, in a recent interview with Blockworks' Casey Wagner, has critically assessed the US regulatory environment:
“The first advice you give, the first piece of advice you give somebody who’s thinking about a project, is don’t launch it in the US because the rules are unclear. Go to a jurisdiction where the rules are clear, not light-touch, but clear.”
Previously, Stuart Alderoty said the company could appeal to the Supreme Court if the outcome of the case does not favor them. He added that historical outcomes suggested the SEC had a low chance of winning at the Supreme Court. Alderoty pointed out that the SEC had lost four out of its last five cases in the Supreme Court, attributing these results to individuals who had the courage and means to resist the SEC's "bullying" tactics and the use of "stretch legal positions" that were not consistent with the law. Meanwhile, Ripple CEO Brad Garlinghouse indicated in October that the lawsuit would end in the first half of 2023 and that he would be open to a settlement, as long as XRP is not classified as a security.
John Deaton on Ripple
On February 19, legal expert John Deaton tweeted that the SEC's argument is "stupidly outrageous". Specifically, Deaton criticized the SEC's assertion that anyone who acquires XRP in Japan is part of a common enterprise with Ripple and all other XRP holders, thereby making the token a security. This claim contradicts Japan's Financial Services Agency, which has previously stated that XRP is not a security.
In another tweet from February 27, Deaton also challenged a statement made by SEC Chair Gary Gensler, who claims that all cryptocurrencies, except for Bitcoin, are classified as securities. Deaton said there is no consensus on how to classify securities in the cryptocurrency industry, referencing MicroStrategy's Executive Chairman, Michael Saylor's statement that Gensler's comments indicated a growing consensus on the matter.
Deaton has also proposed settlement options for Ripple and the SEC ahead of the summary judgment. If the regulator recognizes ongoing and future sales of XRP as non-securities, Deaton suggests that Ripple could pay a settlement ranging from $100 to 250 million. However, Deaton warned that the SEC might not be receptive to this proposal, considering their intensified scrutiny of the digital assets.
Hinman Speech of 2018
Forbes journalist Roslyn Layton's motion to access the 2018 Hinman speech documents sparked a renewed interest in the case. Ripple's legal team has been trying to access the documents for months, which relate to a speech given by ex-SEC Division Director William Hinman in June 2018, where he allegedly said that Ethereum's ETH is not a security. Ripple believes that the same principle could be applied to XRP. Initially, District Court Judge Sarah Netburn had ruled that the email and drafts of the speech were not protected by the deliberative process privilege. In the latest decision, however, US District Court Judge Analisa Torres upheld Judge Netburn's ruling and rejected the SEC's objection to releasing the documents.
The motion has received support from U.S. government watchdog Empower Oversight, and with SEC Chair Gensler stating that only Bitcoin is not a security, the unsealing of the document could be crucial to the case.
Market Reaction
Following the submission of new amicus briefs and proposed dates by the SEC, XRP experienced another surge in value. It peaked at $0.507 on November 5, but plummeted after the LBRY news, eventually dropping to $0.32 on November 9. In the same month, XRP saw some minor gains after rumors circulated that a settlement had been reached between Ripple and the SEC, but these claims were later dismissed by a Ripple spokesperson. As of December 13, the cryptocurrency's trading value was $0.391, indicating a 3.84% increase in the previous 24 hours. However, it hit a low of $0.334 on December 19 before recovering slightly to reach a high of $0.372 on December 27. The year ended with XRP closing at $0.3399. In January, XRP experienced some growth, closing the month at $0.4064, but it dropped slightly to around $0.3975 on February 7 and has been decreasing steadily.
Ripple's 2018 Class Action
Another ongoing legal dispute involving Ripple has seen a new development, according to defense lawyer James Filan. Since 2018, Ripple has been facing a class-action lawsuit in California where XRP investors allege that the company and its CEO, Brad Garlinghouse, sold XRP as an unregistered security, causing them to suffer losses. The plaintiffs are seeking damages and have asked the court to declare XRP as a security.
The case went through several procedural motions, including Ripple's attempt to dismiss the case. However, in March 2021, the judge denied Ripple's motion to dismiss, allowing the case to proceed to trial.
What is next
The crypto industry has closely monitored the Ripple-SEC legal disputes, which sees it as a potential benchmark for regulatory oversight of the space. The case has underscored the necessity for unambiguous and dependable regulatory guidelines for cryptocurrencies and the limitations of the SEC's regulatory authority. The crypto sector will be closely observing the outcome of the case to see how it might affect future regulatory actions. What is clear - the recent criticism of the SEC's cryptocurrency regulatory approach highlights the difficulty and disagreement surrounding the issue.
