SEC Could Soon Settle With Ripple If These Two Key Scenarios Unfold, Say Crypto Legal Expert

SEC Could Soon Settle With Ripple If These Two Key Scenarios Unfold, Say Crypto Legal Expert

September 12, 2022

As the contentious legal spat between Ripple and the U.S Securities and Exchange Commission (SEC) rages on, the crypto community’s anticipation of reaching a potential settlement between the two parties is top of mind. U.S. Attorney John Deaton pointed out two main aspects that would see the securities watchdog settling with Ripple, ending the drawn-out court battle over the sale of XRP tokens. 

When Can The SEC Agree To Resolve Claims Against Ripple?

Ripple has been in SEC’s crosshairs since late 2020, when the Commission sued the company and members of its leadership for allegedly selling XRP coins in violation of federal securities laws. The SEC and Ripple have been involved in a prolonged back-and-forth over the documents that must be produced through the discovery process.

Meanwhile, John E Deaton, a lawyer representing 65,000 XRP holders in the lawsuit via Amicus Curiae status, suggested in a recent tweet thread that the SEC will not settle until the political risks outweigh the political benefits, and right now, chairman Gary Gensler does not think he has a lot to lose by not settling.

Deaton laid out two circumstances that could force the SEC into a settlement with Ripple. First is if the agency must surrender the bulk of emails and notes with a draft of former director William Hinman’s speech.

The speech has been deemed pivotal for the lawsuit, given Hinman told conference attendees in June 2018 that Ethereum was not a security. Ethereum is now treated as a commodity in the U.S., with the Commodity Futures Trading Commission (CFTC) regulating derivatives products based on the crypto. Nonetheless, the SEC has been trying to hide these Hinman emails for the longest time.

The second aspect that could prompt a settlement is if the SEC receives an unfavourable judgment in the LBRY case.

There will be no settlement for Deaton unless one or both of these events occur.

The SEC brought the lawsuit against LBRY last March, alleging the decentralized content platform sold millions worth of LBRY Credit (LBC) tokens in 2016 that, in the interests of the public, should have been registered as securities. The LBRY lawsuit could conclude the XRP v Ripple. As such, the SEC could cite the rulings from the LBRY case in the long-standing Ripple suit.

Ripple And SEC Are Lurching Toward A Decisive Showdown

Deaton noted that Ripple offered to settle even before the SEC lodged its scorching complaint by paying a fine and penalties related to XRP sales in the early years. However, the SEC refused to settle.

The attorney and founder of CryptoLaw further observed that acting SEC Chair Allison Herren Lee reversed the policy on accepting settlement offers contingent on waivers. This decision likely prevented any settlement with Ripple and other crypto firms.

At the moment, Ripple is awaiting a decision by District Judge Analisa Torres regarding the SEC’s client-attorney privilege concerns over the Hinman documents. Should the judge rule in Ripple’s favour, Deaton believes, the agency will move to get a certification for an interlocutory appeal to the 2nd Circuit, further delaying the resolution of the Hinman speech emails matter.

The implications of the SEC lawsuit for Ripple and the crypto industry are massive. Suppose the agency wins in both the LBRY and Ripple cases. In that case, Deaton predicts it will give Gensler the validation that most cryptocurrencies qualify as securities and the justification that the SEC should regulate them.

Jeremy Hogan, another attorney, following and commenting on the Ripple lawsuit, says the SEC’s allegations that Ripple sold XRP as unregistered security could soon be resolved. “Most likely settlement timeframe is from now until end of November because the cards will be on the table,” Hogan posited.

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