TheCorporateCounsel.net

Yesterday, the SEC announced that it had settled the civil enforcement action that it filed against Ripple Labs and two of its executives back in December 2020, which had resulted in an injunction and penalty last summer. Here’s an excerpt from the SEC’s announcement:

The settlement agreement provides, among other things, that the Commission and Ripple would jointly request the district court to issue an indicative ruling as to whether it would dissolve the injunction against Ripple in the district court’s August 7, 2024 final judgment and order the escrow account holding the $125,035,150 civil penalty imposed by the final judgment be released, with $50 million paid to the Commission in full satisfaction of that penalty and the remainder paid to Ripple.

The Settlement Agreement further provides that, following an indication from the district court that it would dissolve the injunction and release the escrowed penalty amounts as requested, the Commission and Ripple will seek a limited remand to the district court for that relief, after which they would move to dismiss their respective appeals from the final judgment, which are currently pending in the United States Court of Appeals for the Second Circuit. The Commission and the defendants filed the settlement agreement with the district court as part of their joint request for an indictive ruling.

The Commission’s decision to exercise its discretion and seek a resolution of this pending enforcement action rests on its judgment that such resolution will facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, not on any assessment of the merits of the claims alleged in the action. Furthermore, the Commission’s decision to resolve this enforcement action does not necessarily reflect the Commission’s position on any other case.

The 2020 case alleged that Ripple’s digital token was a “security” and that the company had conducted an unregistered public offering. The 2024 court decision awarded the Commission a fraction of the nearly $2 billion in penalties that the SEC had pursued, but it is still significant that the SEC is relinquishing its limited win. Commissioner Crenshaw issued this dissenting statement arguing that the settlement undermines the court’s order and the SEC’s credibility and is not in the interest of investors. Here’s an excerpt:

This settlement is part of a broader, programmatic shift to dismiss our registration cases in the crypto context.[5] In remodeling our legal stance in this area, we have pointed to a new “regulatory path,” that the agency will purportedly pursue based on the work of the SEC’s Crypto Task Force.[6] But, even if the Crypto Task Force re-writes registration rules for crypto securities in the future, that does not somehow alter the rules that were in place at the time that Ripple violated them. Further, we have no hint of what those future rules might look like or how long it will take to put them in place—if ever. So, we are today accepting a diluted settlement, that erases the investor protections we already won, based on a non-existent framework that may or may not come to fruition potentially years from now, on the basis that the current framework in place—of applying the facts to the law—was not industry or innovation-friendly.

It’s true that the SEC has done a 180 on crypto over the past few months – taking several steps to provide support and guidance to the fintech industry, which aligns with January’s Executive Order on digital assets. From the highlight reel:

– Announcement of crypto as a priority

– Rescinding SAB 121

– Series of roundtables

– Staff statement on meme coins

– Staff statement on crypto mining

– Staff statement on stablecoins

– Staff statement on disclosure framework for crypto assets

– Disbanding the crypto enforcement team

I’ve probably even missed a few! This settlement shows that the SEC is not only making a concerted effort to act quickly on this topic – it is also putting its money where its mouth is.

– Liz Dunshee