SEC seeks dismissal of lawsuit against Ripple executives

In a surprising turn of events, the Securities and Exchange Commission (SEC) has asked for a dismissal of its lawsuit against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen. This decision comes after nearly three years of legal battles, during which the executives were accused of violating investor-protection laws by selling $1.4 billion worth of Ripple's XRP tokens, which the SEC labeled as an unlicensed security.

The federal court involved in the Ripple case, the United States District Court, has seen the case progress to the Second Circuit Court of Appeals. However, the SEC's recent move signals a significant shift in the ongoing saga.

Ripple, in a press release, called the SEC's request a "stunning capitulation by the government." Stuart Alderoty, Ripple's chief legal officer, further stated on the social media platform X that this is not a settlement but a surrender.

The SEC's decision to drop the lawsuit against Garlinghouse and Larsen comes as it focuses its resources on cases against larger crypto firms such as Coinbase and Binance, which it has also sued for alleged securities violations. This ruling puts Ripple on the hook for $728.9 million in unlicensed securities sales, but not all of this amount will be asked to be paid back, as much went to overseas buyers, whom the SEC doesn't oversee.

Garlinghouse stated that he could have settled with the SEC years ago for less than what Ripple spent on legal expenses but chose to fight "for the industry." He further mentioned that Ripple was forced to defend itself from an ill-advised attack that was flawed from the day it was filed.

Judge Analisa Torres of the U.S. District Court for the Southern District of New York ruled in July that XRP is a security when it's sold to institutional investors but not to the general public. This ruling adds a layer of complexity to the case, as it suggests that XRP may be considered a security under certain circumstances.

Larsen called the lawsuit a "troubling attempt to abuse the rules in order to advance a political agenda to suffocate crypto in America" and stated that the SEC should face "questions about the origin and motivation of this lawsuit."

The next step is for attorneys for Ripple and the SEC to meet to discuss "what remedies are proper," which refers to an undetermined penalty for the portion of XRP sales a judge deemed illegal. The SEC has declined to comment on the matter, and it remains unclear whether they will appeal the decision.

Before the SEC's suit, XRP ranked as the world's third-most valuable crypto token. However, it lost 60% of its value within a week of the legal action. With the dismissal of the lawsuit, there is hope that the value of XRP may recover.

It's worth noting that Ripple agreed in May to buy Swiss crypto custody firm Metaco for $250 million, a move that could strengthen its position in the industry. No new information about technology was provided in the paragraph.

As Ripple moves forward, it plans to focus its hiring efforts in international markets, with roughly 90% of its business already outside the U.S. Matt Solomon, a partner at Cleary Gottlieb Steen & Hamilton who represented Garlinghouse, stated that the SEC was right to abandon its claim against Garlinghouse when faced with the prospect of having to prove it in court.

Katherine Kirkpatrick Bos, chief legal officer for Cboe Digital, tweeted that the SEC can appeal the Ripple decision much sooner by dropping its case. Elliott Stein, a Bloomberg analyst, suggested that the SEC may have wanted to avoid bad facts coming out at trial of the individuals that could jeopardize the win the SEC got on direct institutional sales.

This development in the Ripple case is a significant milestone for the crypto industry, as it highlights the potential for regulatory bodies to reconsider their stance on cryptocurrencies. As the dust settles, it will be interesting to see how this decision impacts the future of XRP and the broader crypto market.