SEC vs Ripple Case Ends With $125M Penalty; Experts Pick Their Winner

The years-long legal battle between the U.S. Securities and Exchange Commission (SEC) and enterprise blockchain solutions company Ripple has finally come to a close, with the court ordering the company behind the $XRP cryptocurrency to pay a civil penalty of $125 million.

How it started

The Wall Street regulator sued Ripple in 2020 for allegedly selling unregistered tokens which the SEC deems as securities. "Ripple created an information vacuum such that Ripple and the two insiders with the most control over it – [Christian] Larsen and [Brad] Garlinghouse – could sell XRP into a market that possessed only the information they chose to share about Ripple and XRP," the SEC filing stated.

How it went

The parties have gone back and forth in the nearly four-year-long legal scuffle, with Ripple vehemently denying the regulatory agency's allegations. Garlinghouse, Ripple's CEO, has called out the SEC over the years for its alleged lack of "faithful application of the law." He said last year that he believes the case will end soon.

His statements were made after Judge Analisa Torres found that $XRP can only be tagged as a security when it is sold to institutional investors. The ruling was celebrated widely in the cryptocurrency community.

How it ended

On Wednesday, Judge Torres said in her order that "the entry of final judgment is granted in part and denied in part." In particular, Ripple will have to pay a civil penalty of 125,035,150, a penalty significantly lower than the regulator's demand, "which dictates in favor of a larger penalty to accomplish 'the desired punitive effect.'"

The regulator said 1,700 of Ripple's relevant contracts in relation to the case constitute "a separate violation," but the court found 1,278 of the said transactions violated securities laws, thus the $125 million penalty.

Garlinghouse previously revealed that the SEC was asking Torres to penalize Ripple with a staggering $2 billion over its violations. "There is absolutely no precedent for this," he said.

Who won the case?

For Hogan & Hogan partner Jeremy Hogan, the case's end is "a big win for Ripple," explaining that Torres did not order Ripple to stop on-demand liquidity sales as the SEC wanted, but only gave "a generic order against breaking the law."

Senior Bloomberg ETF analyst James Seyffart agrees. He noted that he believes the regulatory agency will take the order as a win due to the massive penalty. "But that's really a win for Ripple as far as I'm concerned. And an L for the SEC's 'regulation via enforcement' stance," he said.

For prominent podcaster Luke Martin, it doesn't matter what everyone's opinion is on the matter. "It never gets old watching [SEC Chair] Gary Gensler & SEC lose another crypto case," he pointed out.

A judge dismissed the SEC's lawsuit against Debt Box earlier this year after he found that certain SEC lawyers provided "false and misleading" statements in 2023 in relation to the case.

Stuart Alderoty, the chief legal officer of Ripple, offered his translation of Judge Torres' ruling, saying the court rejected the SEC's suggestion that Ripple was acting recklessly in its $XRP sales "and she reminds the SEC that this case did not involve any allegations of fraud or intentional wrongdoing, and no one suffered any financial harm."

$XRP flies

Following the ruling, $XRP saw a significant spike, surging by over 19% in the last 24 hours, as per data from CoinGecko. Before news of the court's decision emerged, the token was trading at around $0.5018. As of writing, it has climbed to $0.6144.

Garlinghouse has since celebrated with the $XRP community, noting how the court reduced the SEC's penalty demand because it recognized "that they overplayed their hand." He said Ripple respects the court's decision and now has "clarity to continue growing our company."