In a vigorous dissent, US Securities and Exchange Commissioner (SEC) Caroline Crenshaw has publicly condemned the recent settlement agreement between the agency and Ripple Labs, along with its executives.
Ripple’s Legal Victory
The settlement, announced on Thursday, follows a lengthy legal battle that began in December 2020, when the SEC, under the then-Chairman Jay Clayton, sued Ripple for allegedly selling unregistered securities in the form of its cryptocurrency, XRP.
The SEC’s lawsuit claimed that Ripple and its leaders raised capital by selling XRP without registering it as required under US securities laws. The court ultimately ruled that Ripple’s institutional sales of XRP constituted an unregistered offer and sale of investment contracts, violating Section 5 of the Securities Act of 1933.
However, the court also determined that other secondary sales did not fall under this violation. As a result, Ripple was ordered to pay a civil penalty exceeding $125 million and was permanently restrained from future violations. Both parties subsequently appealed the ruling.
The newly announced settlement allows Ripple to reclaim over $75 million held in escrow and vacates the court’s injunction that required compliance with the law.
Crenshaw Urges Courts To Reconsider SEC’s Shift
Crenshaw criticized this outcome, arguing that it undermines the court’s authority and the integrity of the SEC’s enforcement program. She expressed concerns that the settlement effectively nullifies the court’s civil penalty ruling and allows Ripple to circumvent the law without consequence.
“If Ripple decides tomorrow to sell unregistered XRP tokens to institutional investors—in plain defiance of the court’s order—this Commission will do absolutely nothing about it,” she stated.
Crenshaw also emphasized that the settlement reflects a troubling shift in the SEC’s approach to cryptocurrency regulation, suggesting that it diminishes the agency’s ability to enforce existing laws.
She pointed out that the resolution raises more questions than it answers, particularly regarding investor protections and the legal implications of the court’s earlier ruling. “This creates a regulatory vacuum with no end in sight,” she lamented.
The Commissioner highlighted her confidence in the SEC’s legal arguments presented in the ongoing appeal to the Second Circuit. She expressed concern that the agency may be retreating from its previous positions in favor of a more lenient regulatory stance, which she believes could undermine investor protections that the SEC is mandated to uphold.
Crenshaw concluded her remarks by urging the courts to scrutinize the SEC’s attempts to retract its claims and to reconsider the implications of this settlement for the future of its enforcement program.
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