The Securities and Exchange Commission is no longer pursuing civil charges against Ripple executives Christian Larsen and Brad Garlinghouse, according to a court filing in the Southern District of New York on Thursday.
The decision is the latest chapter in the prolonged legal battle between the SEC and Ripple, a major crypto firm, over the issuance of its cryptocurrency XRP. The SEC has faced recent defeats in the case, including an unexpected ruling by Judge Analisa Torres in July that found that Ripple's sale of XRP on exchanges did not constitute an unregistered security, with the SEC's latest retreat signaling the saga is nearing its end.
Since its founding in 2012, Ripple has been one of the most prominent crypto firms, with its XRP token long occupying one of the top positions in the list of cryptocurrencies by market cap. Ripple's decision to issue XRP to both institutional and retail investors ran afoul with regulators, however, with the SEC charging the company and its two executives in 2020 with offering unregistered securities.
The case became a proxy battle between the SEC and the crypto industry. When Gary Gensler took over the SEC in early 2021, he argued that the vast majority of cryptocurrencies represented unregistered securities. Many in the industry hoped that a victory in the Ripple case would undermine the SEC's position.
Despite the level of scrutiny, Torres's July decision came as a surprise to onlookers. She found that institutional sales of XRP by Ripple to buyers such as hedge funds did constitute unregistered securities. Programmatic sales, where XRP was offered on the open market, like exchanges, did not. She also rejected the SEC's motion for a summary judgment on whether Garlinghouse and Larsen had aided and abetted the sale of XRP, pushing the issue to a later jury trial.
Even though the SEC won in part, the broader ruling signaled that the sales of cryptocurrencies on exchanges would not necessarily constitute a security, thus hurting the SEC's other litigation against companies like Coinbase and Binance. The SEC tried to bid for a quick appeal, which would allow it to challenge the decision even while the unsettled issues went to trial, but Torres rejected the request in early October.
With Thursday's filing, the SEC and Ripple agreed to drop the charges against Garlinghouse and Larsen, thus removing the need for a jury trial. According to the document submitted by SEC attorney Jorge Tenreiro, the two sides will meet to decide on the penalties against Ripple for its sale of XRP to institutional investors. Once remedies have been determined, either side can appeal the broader decision.
"We always believed that the case was meritless, and that the SEC compounded its error by personally targeting Brad, who did absolutely nothing wrong," said Matt Solomon, the lawyer for Garlinghouse, in a statement shared with Fortune. "Faced with the prospect of having to prove its remaining claim against Brad in court, the agency was right to abandon it."
Martin Flumenbaum, a lawyer for Larsen, said that the SEC's decision demonstrates that the "claim against the individual defendants should never have been brought in the first place."
A spokesperson for the SEC declined to comment.
