Updated on March 04, 2023 10:53 AM
Ripple allegedly generated more than $1.3 billion through unethical tactics, according to the lawsuit, which was filed by the SEC on December 22, 2020. This post covers all you need to know about it.
In 2012, Ripple Labs made its debut on the fintech scene with the reassuring promise of offering financial institutions quick and inexpensive clearing of international money transactions.
To make it possible, the company developed the RippleNet network, which enables real-time settlement and clearing of transactions made using the cryptocurrency XRP.
However, over time, XRP expanded beyond the cited application. In 2013, the company's founders raised money using XRP as a digital asset. As a result, in 2020, Ripple Labs and its current and former CEOs were sued by the United States Securities and Exchange Commission (SEC).
However, why did the SEC sue Ripple? Hold on tight as we uncover all about it in today's article!
Ripple Labs issued XRP tokens between 2013 and 2020 to raise USD 1.3 billion in funding. By the time the SEC brought legal action against Ripple Labs around the end of 2020, there were no indications that Ripple was under investigation. Ripple was already traded on more than 200 exchanges at that time.
XRP wasn't a registered security, but the SEC claimed that Larsen and Garlinghouse generated money unlawfully since it was made available to investors all around the world. The SEC further claimed that Ripple Labs used to market services for non-cash transactions and paid for them with XRP in order to promote the sales of its tokens.
According to the lawsuit, Larsen and Garlinghouse also carried out personal unregistered sales of XRP totaling around $600 million in addition to structuring and marketing the XRP sales used to support the company's operations.
According to the SEC website, the complaint claims that the defendants violated the federal securities laws' registration requirements by failing to register their XRP offers and sales or to abide by any exemptions therefrom.
Most cases filed by the SEC are settled before going to trial. Individual cryptocurrency businesses must comply with the SEC's requests and pay fines to be freed. Ripple, in contrast to many others, went all out and got into a legal fight.
Lawyers for Ripple asserted that the SEC never forewarned or informed the company. The American regulatory body also acknowledged that Ripple was not informed that XRP may be considered securities. Because of this, Ripple thought the SEC had a bias when it came to treating virtual currencies like XRP as securities. If this is shown to be accurate, the commission's credibility and authority will both be compromised.
Some of the connections SEC members have had with other cryptocurrency systems, such as Ethereum, have been particularly addressed by Ripple.
Although there is presently no evidence of these connections, the commission exempted Ethereum from securities regulations by claiming that it was acting decentralized while also suing XRP, which appeared fishy.
Advocates believe that so far, the court decisions have favored Ripple. XRP2 advocate and U.S. legal counsel Jeremy Hogan anticipate a speedy resolution to the lawsuit. By April 2022, according to Garlinghouse, the SEC lawsuit will be concluded.
The letter, which said that the class-action lawsuit will start on August 26, 2022, but that the parties had decided to begin on November 18, 2022, to prepare for the factual and legal questions, was presented to the court of law on February 23, 2022.
Who will prevail in the SEC Vs. Ripple's lawsuit is uncertain. Both Ripple Labs and the SEC appear to have some procedural consideration success but in different ways.
For instance, although the SEC was successful in getting a postponement, Ripple was successful in forcing the SEC to hand up paperwork. More than only the Ripple community is affected by the rulings in the Ripple vs. SEC dispute.
The lawsuit can provide a strong message to all participants in the cryptocurrency business, including exchanges, investors, and traders, in addition to XRP holders. The verdict in the lawsuit might have a variety of effects depending on the nation.
The outcome of the lawsuit, on the other hand, would give the United States a special position in the crypto sphere. Most members of the cryptocurrency community are optimistic about the Ripple v. SEC legal battle and think Ripple Labs will prevail over the SEC.
However, the price of the XRP coin and what can happen to it if Ripple loses the lawsuit are what existing XRP holders are most worried about.
It's currently at a standstill. But if history is any indication, the SEC faces a challenging challenge. As required by the SEC, no company has yet to regulate cryptocurrency tokens as securities.
But if history is any indication, the SEC faces a challenging challenge. As required by the SEC, no company has yet to regulate cryptocurrency tokens as securities.
The cryptocurrency community is expecting a decision in the Ripple and Securities Exchange Commission (SEC) dispute as both sides have submitted their last arguments. Deliberations made throughout the hearing have given rise to conjecture about the case's potential conclusion.
John Deaton, a defense attorney and well-known commenter on the case, has offered his prognosis for the result in this paragraph. The lawyer noted in a tweet on January 13 that it is anticipated that the matter will be settled when the presiding judge issues the final decision.
The bulk of the XRP community, however, did not agree with the prediction's assertion that the judge would rule before a settlement was achieved. He made it clear that a similar result is feasible, particularly if the parties desire to forgo future appeals.
“Some people are confused about my prediction that the Ripple case doesn’t settle until AFTER Judge Torres renders a decision. A settlement could occur after which would eliminate any potential jury trial and also eliminate any potential appeal,” he said.
The cryptocurrency community is now focused on the potential timing for the decision, despite the fact that defense attorney James Filan said that the case should be resolved by March 31.
Charles Hoskinson, the inventor of Cardano (ADA), famously asserted the lawsuit's decision will be made back on December 15, 2022. However, as the deadline drew nearer, Hoskinson came under criticism, which led him to sever his links to the XRP community.
Additionally, there is a dispute between SEC and Ripple regarding the sealing of various papers. In this paragraph, the SEC had filed a motion to seal documents it considered to be secret; Ripple subsequently objected to this motion.
Updates as of February 2023
Despite the fact that both parties in the Ripple and Securities Exchange Commission (SEC) case have submitted their last arguments and are awaiting a summary decision, the regulator's authority to oversee cryptocurrencies and unseal important records continues to be the major point of discussion.
In the most recent update, pro-XRP attorney John Deaton questioned a claim made by SEC chair Gary Gensler that any cryptocurrency other than Bitcoin (BTC) is categorised as a security. The SEC is leveraging Ripple to market XRP as unregistered securities, it is important to note.
On February 27, Deaton tweeted that there is no agreement on how to classify securities. He said this in response to a statement made by Michael Saylor, executive chairman of MicroStrategy, who said that Gensler's comments demonstrate the growing agreement over the classification of securities.
Possibility of Settlement
Deaton had previously discussed potential settlement agreements between the parties as they awaited the summary ruling. Deaton claims that in the event that the regulatory body accepts that current and future transactions of XRP do not qualify as securities, Ripple would make a settlement payment of $100 to $250 million.
He did issue a warning, noting that the SEC was not likely to approve of the strategy given its enhanced scrutiny of the digital asset market. Deaton said that the judge in charge of the case might shed further light on how XRP was used in secondary transactions.
It's important to remember that Ripple General Counsel Stuart Alderoty already suggested that the SEC had a little likelihood of succeeding in the Supreme Court case based on previous outcomes.
The ultimate judgment in this much-watched case has not yet been made public. However, the choice is significant because it will show how US authorities see innovation and blockchain technology.
If the SEC wins the case, it will dull the emotions of all the players in the cryptocurrency industry and cause enthusiasm for the technological advancement of cryptosystems to wane.
Less restrictive rules may be in effect, though, if the court rules in Ripple Labs' favor. Additionally, blockchain technology would be free to evolve and innovate. It may also imply that other countries follow suit and make efforts to advance the underlying technology.
The market capitalization of XRP is $19.09 billion, with increasing purchasing pressure, and the outcome of the lawsuit is expected to have an effect on its price.
The creators of Ripple established XRP in 2012. In December 2020, the San Francisco-based corporation and its current and past senior executives were sued by the SEC on charges that they had been selling unregistered securities worth $1.3 billion since the token's inception.
If it loses its legal battle with the SEC, Ripple CEO Brad Garlinghouse says the cryptocurrency startup will relocate to another nation.
A minor victory for the remittance firm in the US Securities and Exchange Commission (SEC) v. Ripple litigation continued to be litigated. Ripple, a global leader in payments, was granted permission to redact papers provided in conjunction with the Daubert Motion by Judge Analisa Torres.
Beyond the strong criticism of the SEC's stances or strategies by the tribunal, all of these cases have something in common. These are by no means the SEC's only setbacks in recent years; the agency lost each and every one of these lawsuits.