SEC Shifts Focus in Ripple Lawsuit as Executives Avoid Trial

In a significant development in the nearly three-year-long securities violation case, the U.S. Securities and Exchange Commission (SEC) has dropped charges against Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen as of Friday. The SEC, led by Gary Gensler, has shifted its focus to scrutinizing Ripple’s direct sales of XRP to institutions for potential violations of federal securities laws.

This decision follows Ripple’s notable victory in July 2023, when Judge Torres ruled that XRP should not be classified as a security. The ruling deemed Ripple’s retail sales of XRP through exchanges as lawful, while indicating that institutional sales might constitute violations. As the case progresses into its remedy briefing stage, negotiations between Ripple and the SEC are intensifying.

Ripple’s success in avoiding a court trial for its executives may indicate a possible shift in the legal landscape. Legal analyst Fred Rispoli interprets these developments as potential signals of a settlement, which could have broader implications for cryptocurrency regulation.

Garlinghouse and Larsen have criticized the SEC’s approach, labeling it as “absurd theatrics” and an abuse of power. They have raised questions about the intentions behind the SEC’s pursuit, emphasizing the individual repercussions involved. Garlinghouse has further accused the SEC of unfairly targeting American companies over offshore violations.

Eleanor Terrett, a correspondent for Fox Business, mentioned that an immediate appeal by the SEC is not expected, as procedural norms generally require waiting for a final judgment after the penalty phase, which could take months. Katherine Kirkpatrick, chief legal officer at Cboe Digital, speculated that the SEC might be employing this legal strategy to facilitate an appeal against Ripple’s favorable ruling.

The outcome of this lawsuit has broader repercussions for the cryptocurrency sector, particularly regarding the classification of digital assets as securities. It remains to be seen how this shift in focus will affect Ripple’s operations and the wider regulatory framework.