Sep 27, 2022 - Economy

Coming court ruling in crypto company vs SEC could have "Ripple" effect

Illustration of the Ripple logo on a scale

Illustration: Sarah Grillo/Axios

To fight or not to fight the Securities and Exchange Commission — that enduring question for crypto companies should have a clearer answer following an almost two-year battle between the regulator and the company now called Ripple.

The big picture: The central question that could be answered by court ruling in a matter of months — one that has the entire crypto industry on the edge of its seat — is whether xrp, the coin that Ripple uses to enable international payments, should be considered a security.

Why it matters: The ruling on SEC vs Ripple Labs, some people think, could have greater implications for other crypto firms and their native coins.

  • In the event Ripple prevails, crypto firms would have a precedent-setting case to argue that theirs is not, and should not, be considered a security. (Er, Ripple Effect, anyone?)
  • In the event the SEC prevails, Chair Gary Gensler gets a feather in his cap as crypto enforcer supreme in his years-long effort to put a trillion-dollar industry (just shy now) under his thumb.

What they're saying: "Ripple is fighting this lawsuit on behalf of the entire crypto industry," Stu Alderoty, general counsel at Ripple Labs, said in an emailed statement responding to queries.

  • The SEC declined comment to Axios.

Context: The SEC in December 2020 brought a suit against the company, alleging that Ripple, its CEO Brad Garlinghouse, and co-founder Chris Larsen engaged in an illegal securities offering, during which they each personally sold xrp for hundreds of millions of dollars.

  • Ripple disagrees that xrp is a security and has spent more than $100 million doing so, according to the company.

Of note: Ripple the company now makes a distinction between it and xrp —probably to create separation from the firm and the coin in question — once called "ripples." But that ticker symbol signals that history: Coins of a certain era sport "X" in front, thus "XRP" is to Ripple as "XTZ" is to Tezos.)

The latest: Both Ripple and the SEC on Sept. 13 filed motions in New York requesting a summary judgment, saying the judge overseeing the case had enough information to make a ruling without moving the case forward to a trial.

  • During a Mainnet fireside chat last week, CEO Garlinghouse said it would take as little as two months, or as long as six, to resolve what started in December 2020.
  • Alderoty in a recent interview said a settlement with the SEC would only be possible if the regulator said all xrp sales and secondary sales made by Ripple were not securities.

What they're saying: "This case will reaffirm the legal limits of the SEC’s jurisdiction to securities," Alderoty said in an email to Axios. "The SEC does not have free roaming authority over crypto."

  • That's something crypto industry insiders say a lot and wish were true — 'you can't touch this coin, because it's not SEC domain.'

Yes, but: Not everyone agrees that the Ripple ruling will have the broad-reaching implications that many in the industry hope it will.

  • "The question of whether something is a security is fact-specific, and there are important factual differences among coins," Adam Levitin, professor of law at Georgetown University Law Center, wrote in a tweet.
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