Ripple Defeats SEC in Court, CEO Brad Garlinghouse Says

Breaking News: The Ripple-SEC case is finally ending after years of legal battles. The winner? Ripple and its XRP token. This could reshape digital asset regulations and open doors to new crypto investments.

“I’m finally able to announce that this case has ended. It’s over,” Brad Garlinghouse, Ripple CEO,  said in a video shared to his X account Wednesday. 

After Garlinghouse’s announcement, the price of XRP jumped by 12%, reaching $2.4 after dipping to $1.7 in February. This rebound shows renewed confidence from crypto investors, as new horizons open up for institutional adoption of XRP.

How it all started?

The legal battle between Ripple and the SEC began in December 2020 when the U.S. Securities and Exchange Commission (SEC) sued Ripple Labs, along with its executives Brad Garlinghouse and Chris Larsen. The SEC accused Ripple of illegally raising $1.3 billion through an unregistered sale of XRP tokens. Ripple denied the allegations, arguing that XRP is not a security and should be treated like Bitcoin (BTC) and Ethereum (ETH). In the Ripple case, the SEC argued that XRP met the Howey Test criteria, while Ripple claimed it did not, leading to a major legal battle over how crypto assets should be classified.

What is the Howey Test?

The Howey Test is a legal standard used in the US to determine whether a transaction qualifies as a security under U.S. law. It comes from the 1946 Supreme Court case SEC v. W.J. Howey Co. According to the Howey Test, a transaction is considered a security if it meets these four criteria:

Investment of Money – The buyer invests money or assets.
Common Enterprise – The investment is pooled with others in a shared venture.
Expectation of Profit – The investor expects to make a profit.
Profit from Others’ Efforts – The profit comes mainly from the work of the project’s promoters or a third party. If a transaction meets all four conditions, it is classified as a security and must follow SEC regulations.

The case was crucial for the crypto community as it could establish a precedent on whether numerous cryptocurrencies would be classified as securities, determining the level of regulatory control the SEC has over them.

In 2023, a federal judge ruled that Ripple qualified as a security when sold to institutional investors. However, when sold to retail investors through exchanges, it was not considered a security, as retail traders were unaware of the token's origin. The SEC then appealed parts of this decision.

During the lawsuit, Ripple also worked on strengthening its position by lobbying for clearer regulatory guidelines around cryptocurrencies. This lawsuit turned out to be one of the most expensive cases in the crypto world as of today, showcasing how hard the SEC went down on Ripple Labs, and further signaling the importance of this lawsuit.

Now with the case allegedly fully dropped, will it be used as a precedent in future cases? While nobody knows how other cryptocurrencies will be treated, there is no doubt that this is a significant victory for the Crypto space which will lead to better regulatory clarity.