Ripple nearly shut down in SEC lawsuit, CEO reveals after $125M legal fight

Ripple CEO Brad Garlinghouse disclosed the company nearly shut down during its five-year legal battle with the SEC, a fight that cost $125 million but reshaped crypto regulation globally.

Ripple Labs Inc. came close to shutting down after the U.S. Securities and Exchange Commission sued the company in December 2020, Chief Executive Officer Brad Garlinghouse revealed on July 11. The SEC accused Ripple of conducting an unregistered securities offering through sales of XRP, the token tied to its payments network.

"The company was on the brink," Garlinghouse said in a statement. "We faced an existential threat from a regulator that sought to classify XRP as a security, which would have effectively ended Ripple's operations in the United States."

The legal battle spanned five years and cost Ripple $125 million in legal fees, according to the company. In July 2023, Judge Analisa Torres of the U.S. District Court for the Southern District of New York ruled that programmatic sales of XRP on exchanges did not satisfy the third prong of the Howey Test, delivering a partial victory that distinguished XRP from securities. The ruling influenced token classification frameworks globally, affecting how exchanges list digital assets and how regulators approach enforcement.

The near-shutdown revelation comes as Ripple pushes for clearer regulatory frameworks. Garlinghouse has tied XRP's future to the CLARITY Act, proposed legislation aimed at providing definitive rules for digital asset classification. The company also confirmed a $1.5 billion milestone in XRP-linked ETF assets, signaling growing institutional interest despite the regulatory uncertainty.

Regulatory Ripple Effects

The SEC's lawsuit against Ripple set a precedent that reshaped enforcement strategies worldwide. The case prompted exchanges including Coinbase and Kraken to review their listing policies for tokens potentially classified as securities. In the European Union, regulators cited the Ripple ruling when drafting Markets in Crypto-Assets (MiCA) framework provisions on token classification.

The SEC has since approved Generic Listing Standards for Commodity-Based Trust shares, a move that allows issuers to list crypto-spot ETFs without individual SEC review. Seven ETF issuers, including 21Shares, Bitwise, and Grayscale, await final decisions on XRP-spot ETF filings, with deadlines running from Oct. 18 to Nov. 14.

XRP traded at $2.99 as of Sept. 19, down 2.67 percent on the day, tracking Bitcoin's decline. The token has traded near the psychological $3 level, with support at $2.8 and resistance at $3.2, according to CoinGecko data.

This article is for informational purposes only and does not constitute investment advice.