BlockBeats news, August 14, Bloomberg reported that last week, one of the most watched legal cases in the cryptocurrency field made important progress. A federal judge ordered Ripple Labs Inc. to pay a $125 million civil penalty because the company sold its XRP tokens to institutional investors without registering with the U.S. Securities and Exchange Commission (SEC). This fine is only a small part of the $2 billion the agency sought - which may be good news for other crypto companies fighting the SEC.
Ripple’s case began in December 2020, when the SEC sued Ripple and its executives, including co-founder Christian Larsen and CEO Bradley Garlinghouse, alleging they “created an information vacuum” that allowed them to sell more than $1 billion in XRP in a market that only had information about the cryptocurrency they chose to share.
The lawsuit has united the entire crypto industry in support of XRP. More than a dozen advocacy groups, including the Chamber of Digital Commerce and the Blockchain Association, wrote to U.S. District Judge Analisa Torres in support of Ripple’s stance.
Since then, the SEC has launched enforcement actions against a number of crypto companies, including Terraform Labs, Binance Holdings Ltd. and Coinbase Inc. But Ripple’s case is seen as a potential milestone that could set a precedent on whether cryptocurrencies are securities, which could determine whether issuers need to register tokens with the SEC and disclose certain information to investors.
The SEC had argued that XRP was considered a security under the so-called Howey test, which stems from a 1946 Supreme Court ruling. Under the Howey standard, an investment constitutes a security if there is "investment of money in a common enterprise with a reasonable expectation of profits from the efforts of others." Ripple argued that XRP did not meet this standard because sales were conducted in the secondary market and there was no common pool of profits.
The SEC asked Judge Torres to order Ripple to pay more than $876 million in disgorgement and more than $198 million in interest, as well as a $876 million civil penalty. The SEC said that since the company was sued by the regulator, it has increased its cryptocurrency sales, failed to accept responsibility, and attempted to circumvent the law.
The judge issued an injunction barring Ripple from further securities violations. But she rejected the SEC’s request that Ripple return profits from the sales, saying the case “does not involve allegations of fraud, misappropriation, or other more serious conduct” and that the SEC had not proven that Ripple’s failure to register the sales with the agency caused significant losses to investors.
Ripple’s legal counsel, Stuart Alderoty, said in a phone interview last week that the company respects the ruling and will be able to pay the fine “from our cash balance sheet,” adding, “We’re glad to finally put this behind us.”
The battle is far from over, and the SEC may challenge the judge’s decision in an appeal. But the outcome is already helping shape the future of cryptocurrency legal cases. Bloomberg Intelligence analyst Elliot Stein said Torres’ latest ruling is a positive for Coinbase Global Inc. in its fight with the agency and could increase its chances of a favorable ruling in the case.
