\n
![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/08\/GettyImages-1677495590-e1723128765901.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
On Wednesday, Judge Analisa Torres brought the first chapter of a major Securities and Exchange Commission crypto case to a close, imposing<\/a> a $125 million penalty on the digital assets firm Ripple and forbidding the company from violating securities law in the future. The penalty fell fall short of the $2 billion the SEC had sought, causing XRP\u2014the token closely tied to Ripple\u2014to soar <\/a>more than 20%.<\/p>\n The SEC v. Ripple<\/em> case, which began in late 2020, has been viewed as a bellwether for how courts will rule on a broader anti-crypto enforcement campaign by the agency\u2014a campaign the industry claims exceeds the SEC\u2019s legal authority. In response to Wednesday\u2019s ruling, Ripple executives and other crypto watchers framed the decision as a victory for crypto firms. In the bigger picture, though, an almost certain SEC appeal<\/a>\u2014alongside the vague language of the ruling\u2014means that long-awaited regulatory clarity is still a distant dream.<\/p>\n \u201cThe immediate decision by Judge Torres on balance is very positive for Ripple,\u201d said Joe Castelluccio, a partner at Mayer Brown and the co-leader of the law firm\u2019s fintech and blockchain practice groups, adding that the decision should still \u201cgive the industry and the market a bit of pause.\u201d <\/p>\n Since its founding in 2012, Ripple has carved out a prominent position in the crypto sector through its promise of building a global payments network and its proprietary token, XRP, which has gained a fiercely loyal follower base and an enviable $35 billion market cap. Along with the financial success, Ripple has faced a series of legal challenges, including the 2020 lawsuit filed by the SEC under then-chair Jay Clayton.<\/p>\n Clayton\u2019s successor Gary Gensler<\/a> inherited the case, which quickly became the agency\u2019s flagship litigation as it pursued a bruising enforcement campaign against the volatile industry. The SEC argued that the company had violated the law by raising over $1.3 billion through an unregistered digital asset securities offering.<\/p>\n After a high-profile court battle, which included the unveiling<\/a> of internal SEC emails detailing the inner workings of its approach to crypto, Torres issued a surprising decision<\/a> in July 2023. She found that Ripple\u2019s sales of XRP directly to institutional investors such as hedge funds violated securities laws, but secondary sales of the token on platforms such as exchanges did not. Ripple\u2014and most of the industry\u2014hailed the ruling as a victory, even as the SEC filed to immediately appeal the decision pending a final judgment.<\/p>\n In the time between Torres\u2019s initial decision and her ruling on Wednesday about damages, several other federal judges\u2014including two in Torres\u2019s own district court<\/a>\u2014have weighed in with crypto-related rulings<\/a> of their own. These decisions have come to separate and sometimes contradictory conclusions than what Torres found\u2014meaning the legal status of digital token sales has become a ripe legal question for appeals courts, and potentially for the Supreme Court.<\/p>\n While it is common for government attorneys to ask for greater penalties than are ultimately enforced, Torres\u2019s final figure of $125 million is much closer to Ripple\u2019s ask than what the SEC requested.<\/p>\n \u201cAnyone is going to spin things their own way, but it\u2019s hard not to see it as a win for Ripple,\u201d said a former SEC attorney now working in crypto law, who spoke with Fortune<\/em> on the condition of anonymity because of their continued work with the agency. They pointed specifically to the fact that the judge denied the SEC\u2019s request for disgorgements from Ripple, meaning the company would not have to pay back any profits it had earned from illegal behavior.<\/p>\n Despite the financial win, Torres also imposed an injunction<\/a> against Ripple, ordering the company to refrain from further violations of securities laws. In her decision, she points to Ripple\u2019s \u201cwillingness to push the boundaries\u201d of the law after the SEC filed its initial lawsuit, arguing that there is a likelihood the company \u201cwill eventually (if it has not already) cross the line.\u201d<\/p>\n Because Torres declined to specifically name whether\u2014and how\u2014Ripple had continued to violate securities laws, the question of when digital token sales constitute securities offerings will remain open. \u201cThat points to continued guardrails around conduct in the market, and also the fact that this remains an unsettled area of the law,\u201d said Castelluccio. <\/p>\n Even if Torres had been more firm in her language, it would be unlikely to impact the behavior of other companies, given the ongoing litigation by the SEC against crypto firms like Coinbase<\/a> and Binance. Moreover, because other federal judges have sharply deviated from Torres\u2019s decision\u2014with two in the Southern District of New York finding that secondary sales could also violate securities laws\u2014the disagreements will not be settled until the cases wind their way up to the appellate level.<\/p>\n Given that the SEC already tried\u2014and failed<\/a>\u2014to file an appeal in the Ripple case before Torres\u2019s final decision, the agency will likely again appeal the ruling, including the matter of secondary sales and the penalty. Even with the market responding positively to the decision\u2014including XRP rallying 20% in price\u2014Castelluccio cautioned that Torres\u2019s decision from last July, and yesterday\u2019s, will not have the impact of \u201cchanging the game or changing the market.\u201d <\/p>\n \u201cThose are all significant overstatements,\u201d he added.<\/p>\n A final wildcard in the legal tussle over XRP and other cryptocurrencies is the slow nature of the appeals process, meaning that any higher court ruling in the Ripple case is highly unlikely before 2025 while any Supreme Court ruling would almost certainly have to wait till 2026 or later. In the meantime, the growing interest in crypto on the part of lawmakers means it is possible Congress passes new rules to govern the sector\u2014potentially resolving the legal issues in the cases involving Ripple and Coinbase before the courts do.<\/p>\n<\/div>\n CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n\n The XRP army <\/h2>\n
A penalty and an injunction<\/h2>\n
Recommended Newsletter:<\/strong><\/p>\n