Upcoming court decisions in crypto company vs SEC may have “Ripple” effect

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

The big picture: The central question that could be answered by court rulings within 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’s important: The SEC vs Ripple Labs decision, some people believe, could have larger implications for other crypto firms and their native coins.

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

What they say: “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 questions.

• The SEC declined comment to Axios.

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

• 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 is now making a distinction between it and xrp – probably to create separation from the company and the coin in question – once called “ripples.” But that ticker symbol signals this story: Coins from a certain era have “X” in front of them, and thus “XRP” is to Ripple what “XTZ” is to Tezos.)

The last: On September 13, both Ripple and the SEC filed motions in New York asking for summary judgment, saying the judge overseeing the case had enough information to rule without moving the case to 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 said in a recent interview that a settlement with the SEC would only be possible if the regulator said that all xrp sales and secondary sales made by Ripple were not securities.

What they say: “This case will confirm the legal limits of the SEC’s securities jurisdiction,” Alderoty said in an email to Axios. “SEC Does Not Have Free Roaming Authority Over Crypto.”

• It’s something crypto industry insiders say a lot and wish were true – “you can’t touch this coin, because it’s not the SEC domain.”

Yes, but: Not everyone agrees that the Ripple ruling will have the far-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 between coins,” Adam Levitin, a law professor at Georgetown University Law Center, wrote in a chirping.