#dyor SEC Retreats From High-Stakes Lawsuit Over XRP Cryptocurrency

WASHINGTON—The Securities and Exchange Commission on Thursday said it would drop its lawsuit against two cryptocurrency executives who oversaw $1.5 billion in sales of a digital coin known as XRP, in a move that boosts the industry’s battle against traditional regulation.

The dismissal of civil claims against Brad Garlinghouse and Chris Larsen, who were sued for assisting Ripple Labs’s sales, will likely encourage wealthy crypto defendants to fight regulators in court. At the same time, the SEC’s withdrawal from the case preserves its resources for bigger lawsuits it has filed against crypto giants Coinbase and Binance. The SEC filed the lawsuit against Ripple, Garlinghouse and Larsen in December 2020, when XRP was the third-largest cryptocurrency by market value. The SEC’s lawsuit was a cornerstone of the agency’s high-stakes campaign to regulate crypto through enforcement actions. The SEC disclosed the move to fold its case against the executives in a filing in Manhattan federal court.

Crypto firms say they can’t easily comply with Wall Street-style regulations and have mostly opposed the SEC’s approach. Nonetheless, many crypto companies have paid big fines to settle SEC claims that they illegally sold securities. Ripple was an exception, with Garlinghouse and Larsen gambling that they could beat the government in court.

The cost of paying high-price lawyers to fight off regulators encourages many companies to settle. But Ripple and the two executives had the wherewithal and incentives to fight. Garlinghouse earned $150 million from his sales of XRP and Larsen earned $450 million.