Ripple CEO optimistic crypto firm will get SEC XRP lawsuit ruling soon

The head of cryptocurrency and blockchain company Ripple, Brad Garlinghouse, says he hopes a resolution will be reached with the US Securities and Exchange Commission by the first half of 2023.

“Judges take as long as the judges want to take,” Garlinghouse, who is a defendant in the legal drama, said in an interview with CNBC’s “Squawk Box Europe” Wednesday at the World Economic Forum in Davos, Switzerland. “We are optimistic that this will certainly be resolved in 2023, and maybe [in] first round. So we’ll see how it goes from here. But I feel very good about where we are in terms of the law and the facts.”

The US Securities and Exchange Commission launched a lawsuit against Ripple in 2020, alleging that the company and its executives illegally sold XRP – a cryptocurrency created in 2012 – to investors without first registering it as a security.

Ripple disputes the claim, saying the token should not be considered an investment contract and is used in its business to facilitate cross-border transactions between banks and other financial institutions.

In December, Ripple and the SEC filed their latest round of briefs seeking summary judgment in the case, accusing each other of stretching the law.

The judge can make a decision in favor of both sides, avoid a trial, or send the case to a jury.

Garlinghouse said he expects a ruling to come “sometime in the coming single-digit months” — potentially as soon as June. He added that he does not expect the company to settle the case, although he remains open to the prospect.

“We’ve always said we’d love to settle, but it requires one very important thing, and that’s that on an advanced basis, it’s clear that XRP is not a security,” Garlinghouse said. “The SEC and Gary Gensler have very openly said that he views almost all crypto as a security. And so that leaves very little room in the Venn diagram for settlement.”

At an event in September hosted by the Practicing Law Institute, Gensler said that “the vast majority” of cryptocurrency tokens are securities.

He later suggested that ether could also qualify as a security. Without referring to it by name, Gensler told reporters in September that crypto “staking” mechanisms — which reward users who stake tokens to secure blockchain networks with interest-like payments — should count as securities offerings, since “the investment public expects profits based on others’ effort.” Ethereum, the network behind the world’s second largest cryptocurrency, switched to such a model last year.

The only cryptocurrency that the agency has made clear that it does not view as a security is bitcoin. Gensler has previously stated that the world’s largest cryptocurrency has “no group of individuals in the middle”, meaning investors are not “betting” on a middleman.

The XRP case has important implications for both Ripple and the broader crypto market.

A ruling declaring XRP a security could potentially impose much stricter curbs on Ripple with respect to the token. This could include transparency requirements and greater investor protection, similar to those imposed on regulated broker-dealers.

It could also set a precedent for dozens of other crypto and blockchain projects that could potentially be classified as securities.

Garlinghouse emphasized the significance of the lawsuit’s outcome, saying on Wednesday: “Something I’ve heard here in Davos repeatedly is how important this is not only to Ripple… but also, really, the entire crypto industry in the United States.”

He added, “I keep reminding people that outside of the US, crypto is still booming, Ripple is still booming, and we should make sure we continue to engage non-US regulators as well.”

In a separate discussion with CNBC’s Arjun Kharpal on Wednesday, Garlinghouse issued a stern rebuke of the SEC’s legal battle with his firm, saying the watchdog’s behavior so far had been “embarrassing.”

– From the beginning I thought it was very clear that the facts were on our side, that the law was on our side, he said. “And I think that when you’ve seen this play out, as you’ve seen the proceedings in court, that the judge certainly hears our arguments.”

He continued: “The SEC’s behavior in some of it has been embarrassing as an American citizen. Just some of the things that have happened, like you’ve got to be kidding.”

He said the US is “notably absent” from the list of regulators developing crypto-friendly rules. The United Arab Emirates, Japan, Singapore, Switzerland and Great Britain are some of the forerunners in this regard, in his view.

As part of the lawsuit, Ripple fought to obtain documents related to a June 2018 speech by former SEC official Bill Hinman, which it says helped the case. In the speech, Hinman says that sales of rival ether “are not securities transactions.”

XRP was once the third-largest cryptocurrency, with a market capitalization of $120 billion in early 2018. It has fallen sharply since, amid US regulatory scrutiny and a wider decline in bitcoin and other digital currencies. XRP now has a market cap of around $20 billion, according to CoinMarketCap data.