Katherine Ross

Hold your horses, the battle between the Securities and Exchange Commission and Ripple isn’t quite over yet.



Yesterday, the SEC filed to appeal the <a href="https://blockworks.co/news/ripple-fined-civil-penalty-sec-lawsuit">$125 million judgment</a> in its case against Ripple.&nbsp;



The case, which is now as old as a human toddler — with its four-year anniversary coming up in December — has been a long and hard-fought court case between the two parties.



Both the SEC and Ripple had until Oct. 7 to decide if they were going to pursue an appeal.&nbsp;



An SEC spokesperson told Blockworks that it filed the appeal because it believes the decision “conflicts with decades of Supreme Court precedent and securities laws.”&nbsp;



Read more: <a href="https://blockworks.co/news/sec-enforcement-director-departure">SEC’s enforcement director announces departure&nbsp;</a>



While there are a lot of unknowns about what the appeal will look like, one thing’s for certain: The appeal will not only draw out the process, but also could have some implications beyond just <a href="https://blockworks.co/tag/ripple">Ripple</a> and the <a href="http://v">SEC</a>.



It could, for example, dampen the hopes for a potential Bitwise XRP ETF. The <a href="https://blockworks.co/news/bitwise-files-for-spot-xrp-etf">firm filed its registration statement</a> for a potential ETF on Wednesday. Galaxy Digital’s Alex Thorn warned that the likelihood of success from <a href="https://blockworks.co/tag/bitwise">Bitwise</a> “drops to near zero” with an appeal.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">SEC has until next week (Oct. 7) to appeal Judge Torres’ July 2023 ruling (which held that secondary sales of XRP through exchanges were not securities) likelihood of this ETF filing succeeding drops to near zero if they do appeal (i’ll be very surprised if they don’t appeal) <a href="https://t.co/FBGVZPNvwV">https://t.co/FBGVZPNvwV</a>&mdash; Alex Thorn (@intangiblecoins) <a href="https://twitter.com/intangiblecoins/status/1841214766607384582?ref_src=twsrc%5Etfw">October 1, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Ripple and the SEC both notched wins and suffered some losses throughout the years.&nbsp;



In July of last year, Judge Torres <a href="https://blockworks.co/news/judge-rules-ripple-xrp-not-security">handed the two parties</a> the biggest decision yet: Ripple’s programmatic sales of XRP didn’t constitute investment contracts. However, the double-edged sword was that Torres ruled the institutional sales did.



“The vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all. An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money,” she wrote at the time.&nbsp;



At the time, the SEC sought to file an interlocutory appeal on the decision but was later denied.&nbsp;



And now we’re here. It’s not a huge surprise that the SEC would appeal. After all, they didn’t necessarily win on the final judgment. Though, one could also argue that Ripple didn’t either. And <a href="https://blockworks.co/news/empire-newsletter-ripple-sec-legal-battle">lawyers we spoke to after the decision</a> said they wouldn’t be surprised if an appeal was filed.



Basically, the SEC sought an <a href="https://blockworks.co/news/sec-wants-multi-billion-sum-from-ripple">eye-watering sum of $2 billion</a> in the final judgment. Ripple, on the other hand, wanted a <a href="https://blockworks.co/news/ripple-counters-sec-penalties">far lower sum of $10 million</a>. In the end, Torres announced that Ripple would pay $125 million. It’s fair to say the sum falls closer to what Ripple wanted rather than the multi-billion dollar sum the SEC wanted.



Ripple’s Chief Legal Officer Stuart Alderoty was also not surprised, calling the appeal filing “disappointing.”&nbsp;



“The Court already rejected the SEC’s suggestion that Ripple acted recklessly, and there were no allegations of fraud and, of course, there were no victims or losses,” he added.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">(1) The SEC&#39;s decision to appeal is disappointing, but not surprising. This just prolongs what&#39;s already a complete embarrassment for the agency. The Court already rejected the SEC’s suggestion that Ripple acted recklessly, and there were no allegations of fraud and, of course,… <a href="https://t.co/PQozMMtthf">https://t.co/PQozMMtthf</a>&mdash; Stuart Alderoty (@s_alderoty) <a href="https://twitter.com/s_alderoty/status/1841596012588114116?ref_src=twsrc%5Etfw">October 2, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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CEO Brad Garlinghouse <a href="https://x.com/bgarlinghouse">reiterated</a> that Ripple will continue to fight. He didn’t mince words about the appeal.&nbsp;



“If Gensler and the SEC were rational, they would have moved on from this case long ago. It certainly hasn’t protected investors and instead has damaged the credibility and reputation of the SEC,” Garlinghouse said. “Somehow, they still haven&#8217;t gotten the message: They lost on everything that matters. Ripple, the crypto industry, and the rule of law have already prevailed.”



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SEC files Ripple appeal, cites ‘conflicts’ with Supreme Court precedent

The Securities and Exchange Commission filed on Thursday to dismiss its claims against Ripple CEO Bradley Garlinghouse and former Ripple executive Christian Larsen.&nbsp;



The two were slated to appear in court next April. They faced <a href="https://blockworks.co/news/ripple-sec-jury-trial-spring">charges of aiding and abetting securities laws violations</a> related to sales of Ripple’s <a href="https://blockworks.co/price/xrp">XRP</a>. While the executives faced charges, it’s important to note that Ripple Labs — a named defendant in the suit — was not set to be part of the spring jury trial.



“Today was an even better day…In all seriousness, Chris and I (in a case involving no claims of fraud or misrepresentations) were targeted by the SEC in a ruthless attempt to personally ruin us and the company so many have worked hard to build for over a decade,” CEO Brad Garlinghouse said in a <a href="https://twitter.com/bgarlinghouse/status/1715108497107694019">post</a> on X.



The news comes after the <a href="https://blockworks.co/news/sec-loses-ripple-appeal">SEC was denied its request to seek an interlocutory</a> appeal earlier this month. Judge Analisa Torres, the judge on the case, also denied the regulatory agency’s appeal for a stay of trial, which would have delayed the start of the trial.



In the Thursday filing, the <a href="https://blockworks.co/tag/sec">SEC</a> wrote, “The SEC and Ripple intend to meet and confer on a potential briefing schedule with respect to the pending issue in the case—what remedies are proper against Ripple for its Section 5 violations with respect to its Institutional Sales of XRP.”



The two parties agreed on a Nov. 9 deadline to propose a schedule. However, the court may intervene if the two cannot reach a compromise.&nbsp;



“The SEC made a serious mistake going after Brad &amp; Chris personally – and now, they’ve capitulated, dismissing all charges against our executives. This is not a settlement. This is a surrender by the SEC,” Ripple chief legal officer Stuart Aldeorty <a href="https://twitter.com/s_alderoty/status/1715107927428837875">wrote</a> in a post on X.



Earlier this year, Judge Torres ruled in a summary judgment that the <a href="https://blockworks.co/news/judge-rules-ripple-xrp-not-security">programmatic sale of Ripple’s XRP token did not count as an investment contract</a>, dealing a blow to the SEC in its years-long fight against the crypto company.&nbsp;



“Therefore, the vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all. An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money,” Judge Torres wrote at the time.



The SEC and Ripple have been locked in a legal battle since the SEC first filed its <a href="https://www.sec.gov/news/press-release/2020-338">complaint</a> against the company in December 2020.



Updated Oct. 19, 2023 at 5:32 pm ET: Added comment from Brad Garlinghouse.



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No trial: SEC moves to dismiss charges against Ripple’s Garlinghouse, Larsen

Ripple is abandoning its planned acquisition of Fortress Trust, according to CEO Brad Garlinghouse.&nbsp;



The acquisition was announced in early September, with <a href="https://blockworks.co/tag/ripple">Ripple</a> saying at the time that it would buy the company in a cash-and-equity deal. Further details of the deal were not disclosed.



“The Fortress team is incredibly talented, and has built products solving real customer problems. While this outcome is different from what was originally planned, we’ll continue to support them and hope to work together in the future!” Garlinghouse <a href="https://twitter.com/bgarlinghouse/status/1707455045942292954">said</a> in a post on X, formerly Twitter.



When it announced the potential <a href="https://blockworks.co/tag/M&amp;A">acquisition</a>, Ripple called Fortress Trust a “financial institution that provides licensed Web3 financial, regulatory and technology infrastructure for blockchain innovators.”



Ripple was an early investor in Fortress, and <a href="https://blockworks.co/tag/brad-garlinghouse">Garlinghouse</a>’s social media post on Thursday said that, while the acquisition had fallen through, it would retain its stake in the company.&nbsp;



“We’ve had a chance to get to know the team, its vision and technology,” Garlinghouse said when Ripple announced its plans to acquire the company on Sept. 8. “They’ve built an impressive business with recurring revenue and a strong roster of both crypto-native and new-to-crypto customers.”&nbsp;



A few days after the acquisition announcement, Fortress Trust CEO Scott Purcell told <a href="https://fortune.com/crypto/2023/09/12/fortress-trust-12-to-15-million-hack-bitcoin-usdc-usdt-ripple/">Fortune</a> that the firm had lost around $12 million to $15 million worth of bitcoin, USDC and USDT in a hack. However, Purcell said the company “covered it right away.”



Fortress Trust did not immediately return a request for comment.



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Ripple ditches plan to buy Fortress Trust

Casey Wagner

A federal judge has granted a partial summary judgment in favor of Ripple in its case against the SEC, but the case isn’t over yet.&nbsp;



In a partial win for the company, the <a href="https://blockworks.co/news/judge-rules-ripple-xrp-not-security">court ruled that while Ripple’s institutional sales of XRP constitute an unregistered securities offering</a>, programmatic sales via exchanges do not. The judge did not address several other issues in the case, and it’s not the final verdict.&nbsp;



US District Judge Analisa Torres wrote in Thursday’s filing that the court will schedule a trial to deal with the issues not answered in the summary judgment.&nbsp;



<h2 class="wp-block-heading">What will be determined at trial&nbsp;</h2>



At its heart, the ruling by Torres set the stage for what will or won’t be at issue if and when the case against Ripple goes to trial.&nbsp;



In the summary judgment, the court ruled that “programmatic sales” — defined as sales from <a href="https://blockworks.co/tag/ripple">Ripple Labs</a> to buyers on an exchange — are not securities. “Secondary sales” include sales from someone who is not Ripple Labs or an executive to buyers, either on an exchange or not.&nbsp;



Torres’ summary judgment did not rule on all secondary sales, however.&nbsp;



As no sellers other than Ripple Labs and employees were listed as defendants, that particular issue will not continue in trial. In a blind bid-and-ask trade on an exchange, the buyer does not know whether the purchased assets come from a holder other than the company or executives.&nbsp;



The summary judgment did not determine whether or not a physical written contract is required as part of the Howey test. Ripple argues that because it did not have a written contract, it does not qualify as a security.&nbsp;



Whether or not XRP follows “strict vertical commonality,” referring to whether investors and promoters have mutual dependence on financial success, will have to be decided at trial as well.&nbsp;



The trial will hone in on the first and second prongs of the Howey test as well. The first prong pertains to “whether an ‘investment of money’ was part of the relevant transaction,” while the second focuses on “the existence of a ‘common enterprise,’” the filing read. Torres did not determine whether either prong was reached in the summary judgment.&nbsp;



The fate of Ripple&#8217;s founder and former CEO Christian Larsen, and former chief operating officer and current CEO <a href="https://blockworks.co/tag/brad-garlinghouse">Brad Garlinghouse</a>, will also be decided in the forthcoming trial. In its initial December 2020 complaint, the SEC <a href="https://www.sec.gov/news/press-release/2020-338">charged</a> the two with aiding and abetting securities laws violations. The summary judgment did not make a ruling on this matter.&nbsp;



“Whether the common enterprise extends to encompass ‘other XRP holders,’ defendants Garlinghouse and Larsen, the ‘XRP ecosystem,’ or any other entities,” will also have to be determined in trial, Torres wrote.&nbsp;



<h2 class="wp-block-heading">What the summary judgment means for the industry</h2>



<a href="https://blockworks.co/news/xrp-altcoins-pump-post-ruling">If crypto markets are any indication</a>, the industry considers Thursday’s summary judgment a major win.&nbsp;



XRP soared more than 73% in the hours after the filing. After exchanges like Coinbase and Kraken <a href="https://blockworks.co/news/coinbase-will-relist-xrp-following-ripple-summary-judgement">said they would re-list</a>, bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) and ether (<a href="https://blockworks.co/price/eth">ETH</a>) rallied 5% and 7%, respectively.&nbsp;



“The ruling reinforces that regulatory agencies are not the judge, jury, and executioner when it comes to digital assets,” Ryón Nixon, founding partner of Horizons Law, told Blockworks. “That said, it’s only a first step. Appeals will almost certainly follow, and even this ruling doesn’t address many other important issues.”&nbsp;



Other legal experts cast doubt on whether Thursday’s ruling will significantly impact the SEC’s “regulation by enforcement” strategy.&nbsp;



“As one of the few successful challenges to the SEC in this area, the decision provides a window into additional structuring possibilities for token insurances and secondary market transactions,” said Joe Castelluccio, partner at Mayer Brown and leader of the firm’s fintech and digital assets, blockchain and cryptocurrency groups. “However, I don’t think this decision deters the SEC or causes it to change its approach to this industry.”&nbsp;



Nor is it clear that this particular legal fight is over.&nbsp;



The SEC is expected to appeal the ruling that programmatic sales are not securities, according to Rahsan Boykin, general counsel for Hashflow. The SEC has used this argument in other crypto cases, including its ongoing case against Binance, said Boykin.



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Ripple didn’t win, but it definitely didn’t lose: Where the SEC case goes next

Sebastian Sinclair

Ripple has secured a small victory against the US Securities and Exchange Commission (SEC) — shutting down the agency’s motion to seal internal files known as the “Hinman Speech documents.”



Those documents consist of SEC drafts and emails relating to a speech given by William Hinman, former Director of the SEC&#8217;s Division of Corporation Finance, more than four years ago.&nbsp;



Hinman’s speech reportedly indicated the agency did not consider ether a security at the time. Ripple lawyers have fought to learn more about how Hinman came to that conclusion, which could impact XRP’s own classification.



According to Tuesday’s filing, the SEC made an attempt to justify the need for confidentiality, contending their lack of relevance to the summary judgment motions and potential disclosure could significantly harm the agency&#8217;s interests.



Judge Analisa Torres disagreed in the filing, which triggered an 8% rally for XRP.



&#8220;Regardless of whether the court ultimately determines that the Hinman Speech Documents are admissible, or whether the court relies on the documents in ruling on the summary judgment motions, they are judicial documents subject to a strong presumption of public access because they are ‘relevant to the performance of the judicial function and useful in the judicial process.’&#8221;



The SEC had sought to redact three categories of information in the case: names and identifying information of the SEC&#8217;s expert witnesses and XRP investor declarants, personal and financial information and the Hinman documents.&nbsp;



Public access to the documents has been granted while partial redactions of the names and identifying information of SEC witnesses will remain sealed to protect their welfare.&nbsp;



Still, the vast majority of the SEC&#8217;s expert reports and investor statements, including those relevant to the court&#8217;s decision on the <a href="https://blockworks.co/news/ripple-and-the-sec-agree-on-one-thing-let-the-judge-decide-xrps-fate">summary judgment</a> motions, will be part of the public record. The documents have yet to appear on official court websites.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Another win for transparency! Unredacted Hinman emails to be publicly available soon &#8211; stay tuned as the lawyers work through the mechanics to make that happen. <a href="https://t.co/o6puPypRHd">https://t.co/o6puPypRHd</a> <a href="https://t.co/qmaLVeQaP8">https://t.co/qmaLVeQaP8</a>&mdash; Brad Garlinghouse (@bgarlinghouse) <a href="https://twitter.com/bgarlinghouse/status/1658621618741186560?ref_src=twsrc%5Etfw">May 16, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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<h2 class="wp-block-heading">Not just Hinman: Ripple information will also be unsealed</h2>



The regulator sued Ripple in December 2020. The lawsuit accuses Ripple and key executives of conducting an illegal securities offering that raised over $1.3 billion in XRP sales.



While Ripple Labs won a small victory, its own motion to seal key information relating to its business activities was also denied.



Specifically, the references linking Ripple&#8217;s revenues with XRP sales and the amount of compensation offered by Ripple to trading platforms to list XRP will be accessible to the public.&nbsp;



The amount of Ripple&#8217;s XRP sales targeted at investors through programmatic and institutional sales will also not be sealed, per the filing. Ripple has regularly released quarterly reports detailing that activity, which <a href="https://blockworks.co/news/ripple-xrp-sec-lawsuit" target="_blank" rel="noreferrer noopener">shows billions in XRP bought and sold</a> by the San Francisco firm.



A determination via summary judgment is expected to be handed down sometime later this year, though a definitive timeline remains unclear. An SEC spokesperson declined to comment.



In the meantime, investors are surely waiting to read the unsealed Hinman documents.



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Ripple Wins Battle For ‘Hinman Documents’ in Bitter SEC Case

Ripple Labs&#8217; lengthy battle with the SEC is going down the wire.&nbsp;



Both sides have been waiting for US District Judge Analisa Torres to rule on whether Ripple&#8217;s years-long selling of XRP constituted an unregistered securities offering.



A conclusion could be months away, but the SEC and Ripple can still submit pleas with the court to consider new information. Ripple’s most recent filing points to a recent Supreme Court ruling, which touches on the so-called “fair notice” defense employed by its counsel.&nbsp;



The Due Process Clause of the US Constitution requires individuals be given fair notice of which actions are prohibited by law. For Ripple, the fair notice notice defense goes like this: It couldn’t have known to register XRP with securities regulators, as the agency had never provided enough clarity on what makes a security within the crypto context. 



The US had made a case against Romanian immigrant Alexandru Bittner, who, with 272 bank accounts, broke the law when he failed to file a relevant report with regulators for each one.&nbsp;



US authorities demanded he pay a $10,000 Bank Secrecy Act fine for each one, while the Supreme Court recently ruled he only had to pay just one, worth $10,000.&nbsp;



“Bittner did not learn of this reporting obligation until returning to the United States many years later. After he returned, he filed the required reports, but not in time to avoid violations,” wrote law firm Faegre Drinker in a recent <a href="https://www.faegredrinker.com/en/insights/publications/2023/2/supreme-court-decides-bittner-v-united-states" target="_blank" rel="noreferrer noopener">blog</a>.



In Bittner’s case, the Supreme Court found that fair notice hadn’t been given, specifically to the point that it would demand individual fines for each undisclosed bank account.&nbsp;



Drawing supposed parallels between Bittner and Ripple execs, Ripple Labs’ counsel says Bittner’s recent ruling is analogous to its fight against the SEC, and should be taken into consideration.



Ripple Labs relied on SEC&#8217;s previous statements and actions that led them to understand that XRP was not a security, or so its defense goes. Therefore, the firm had no reason to believe that they were violating securities laws.



Whether Judge Torres feels the same way is another matter. Torres is expected to rule on both sides’ summary judgements sometime this year, which, outside of a settlement, would end the case without a jury.



David Canellis contributed reporting.



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Supreme Court Ruling Backs XRP ‘Fair Notice’ Defense: Ripple

Shalini Nagarajan

The FTX <a href="https://cms.blockworks.co/news/binance-is-buying-ftx-a-timeline-of-events/" target="_blank" rel="noreferrer noopener">brouhaha</a> has further highlighted a problem with US regulation: Securities and Exchange Commission (SEC) ambiguity has forced the top crypto exchanges to operate offshore, leaving customers exposed to bent business practices.



Notably, FTX’s American affiliate, FTX.US, resisted the meltdown. All deposits are backed one-to-one with real money, <a href="https://twitter.com/SBF_FTX/status/1590012133307478016" target="_blank" rel="noreferrer noopener">according</a> to CEO Sam Bankman-Fried, unlike its global counterpart, which seems to have operated more similar to a fractional reserve system.



As well, regulations restricted US-based users from buying FTX’s native token FTT, which <a href="https://cms.blockworks.co/ftx-native-token-ftt-plunges-following-takeover-news/" target="_blank" rel="noreferrer noopener">came under pressure</a> after Binance said it would dump its holdings of the coin, and even moreso once the acquisition fell through.



This ring-fencing by regulators may have encouraged firms like FTX to set up offshore exchanges, effectively leaving customer assets exposed to high-risk unregulated scenarios.



Before it blew up, the flagship FTX platform handled some $2.6 billion in daily trade volume. The US regulated offering was processing just $174 million, now down to $100 million, per Messari.&nbsp;



The same phenomenon happens on Binance, which hails from the Cayman Islands. It’s handling some $18 billion in daily trades, compared to $700 million on Binance.US — a 96% disparity.&nbsp;



Initially based in Hong Kong, FTX <a href="https://cms.blockworks.co/bankman-fried-says-ftx-no-longer-calls-hong-kong-home-heres-why/" target="_blank" rel="noreferrer noopener">moved its headquarters</a> from Hong Kong to the Bahamas in late 2021 because of its friendly crypto framework. 



Residents of the US technically can&#8217;t use FTX&#8217;s main platform, a stipulation of its user policy, loosely enforced by geoblockers avoidable via virtual private networks. The US version offers fewer cryptocurrencies and opportunities for leverage, similar to the divide between Binance&#8217;s own platforms.



A <a href="https://help.ftx.com/hc/en-us/articles/360042412652-Location-Restrictions-" target="_blank" rel="noreferrer noopener">page</a> on its website reads: “US users cannot trade on FTX, but residents of the United States can trade on FTX.US.&#8221;



<h3 class="wp-block-heading">SEC chief Gensler says FTX is on trend for crypto</h3>



Coinbase CEO Brian Armstrong, in a <a href="https://twitter.com/brian_armstrong/status/1590511022104010753" target="_blank" rel="noreferrer noopener">tweet</a> late Wednesday, butted heads with Sen. Elizabeth Warren, who said FTX’s blowup shows “much of the industry appears to be smoke and mirrors, and called on the SEC for more aggressive enforcement.&nbsp;



Armstrong argued that the enormous amount of offshore trading activity was a direct result from what he sees as lacking SEC clarity on how the industry should operate.



&#8220;The problem is that the SEC failed to create regulatory clarity here in the US, so many American investors (and 95% of trading activity) went offshore. Punishing US companies for this makes no sense,&#8221; Armstrong tweeted.



Ripple CEO Brad Garlinghouse agreed, <a href="https://twitter.com/brian_armstrong/status/1590511022104010753" target="_blank" rel="noreferrer noopener">pointing out</a> that most crypto trading occurs offshore because companies effectively have no guidance on how to comply in the US.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Compare that with Singapore which has a licensing framework, token taxonomy laid out, and much more. They can appropriately regulate crypto b/c they&#39;ve done the work to define what “good” looks like, and know all tokens aren’t securities (despite what Chair Gensler insists) 2/2&mdash; Brad Garlinghouse (@bgarlinghouse) <a href="https://twitter.com/bgarlinghouse/status/1590559887238758400?ref_src=twsrc%5Etfw">November 10, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



SEC chief Gary Gensler had his own say about the matter. Speaking at a Healthy Markets Association event on Wednesday, Gensler described the FTX situation as part of a wider trend within the crypto industry.&nbsp;



“It’s really part of a pattern of what we have seen over the past six or eight months,” he said. “Investors get hurt when we don’t rely upon the time-tested public policy guardrails.”



The former investment banker, who worked as a partner at Goldman Sachs, also highlighted the risks from the “commingling” of key intermediary functions where the same firm serves multiple roles.&nbsp;



&#8220;We&#8217;ve got a lack of disclosure, a lot of leverage, using other people&#8217;s money, a lot of interconnected-ness. &#8230; The investing public is hoping for a better future,” he added.



FTX is now being <a href="https://www.wsj.com/articles/sec-investigates-crypto-platform-ftx-11668020379" target="_blank" rel="noreferrer noopener">investigated</a> by the SEC over its $8 billion hole on its balance sheet. 



Regulation by enforcement and a combative, non-productive approach to working with the industry is what’s driven innovative companies offshore, according to Simon Schaber, chief business development officer at DeFi protocol Spool.



“The FTX fallout is a direct result of SEC failure,” Schaber told Blockworks. “It is once again consumers that suffer the most and his former investment banking employers that benefit the most (domestic competition kept at bay) due to the decisions of Chairman Gensler.”







<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">11/ US lawmakers &amp; regulators have some accountability too. You drove this business offshore because you refused to provide a workable regime under which these services could be offered in a supervised manner. Enforcement wrongfully focuses on convenient, on-shore good actors.&mdash; Jesse Powell (@jespow) <a href="https://twitter.com/jespow/status/1590635242087657473?ref_src=twsrc%5Etfw">November 10, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h3 class="wp-block-heading">FTX needs emergency funding to make users whole</h3>



FTX founder Bankman-Fried <a href="https://www.bloomberg.com/news/articles/2022-11-09/ftx-investors-told-that-without-more-capital-bankruptcy-likely?utm_medium=social&amp;utm_source=twitter&amp;utm_campaign=socialflow-organic&amp;cmpid=socialflow-twitter-business&amp;utm_content=business" target="_blank" rel="noreferrer noopener">reportedly</a> informed investors on Wednesday that the firm would have to file for bankruptcy unless it received a cash injection.



Bankman-Fried had hoped rival CEO Changpeng Zhao, founder of Binance, would be his White Knight and save FTX from its “liquidity crunch,” but the deal <a href="https://cms.blockworks.co/crypto-equities-slide-as-investors-digest-ftx-fall-midterm-results/" target="_blank" rel="noreferrer noopener">fell through</a> as quickly as the rescue was proposed.



“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance <a href="https://twitter.com/binance/status/1590449161069268992" target="_blank" rel="noreferrer noopener">said</a>.



Bankman-Fried, <a href="https://edition.cnn.com/2022/11/09/business/sam-bankman-fried-wealth-ftx-ctrp/index.html" target="_blank" rel="noreferrer noopener">barely a billionaire</a> after the shocking downfall of FTX, was on an <a href="https://cms.blockworks.co/sam-bankman-fried-out-to-win-whole-crypto-market-early-ftx-backer-says/" target="_blank" rel="noreferrer noopener">ambitious deal frenzy</a> while chaos played out in crypto markets earlier this year. He sought to rescue beleaguered lenders Celsius, Voyager and BlockFi, but a string of apparent losses eventually led to FTX’s collapse.&nbsp;



He’s now <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-09-2022/card/ftx-needs-8-billion-bankman-fried-tells-investors-2RSa5oqZyZZ5YrPLuZuL" target="_blank" rel="noreferrer noopener">seeking</a> emergency funding from alternative investors, <a href="https://cms.blockworks.co/news/ftx-turns-to-apollo-in-latest-bailout-bid/" target="_blank" rel="noreferrer noopener">including Apollo Global</a>, to meet FTX’s withdrawal requests and is said to be “<a href="https://www.reuters.com/markets/currencies/ftx-turmoil-causes-crypto-concern-sending-token-prices-sliding-2022-11-09/" target="_blank" rel="noreferrer noopener">exploring all options</a>.”



In a leaked <a href="https://twitter.com/cobie/status/1590610757334728704" target="_blank" rel="noreferrer noopener">Slack message</a>, Bankman-Fried told employees his first priority is to compensate customers before anyone else. He also claimed FTX has discussed fundraising with Tron founder Justin Sun, and hinted at the possibility that a future deal would combine FTX and its US affiliate.



But it shouldn’t have had to take a liquidity scare, withdrawal freeze and <a href="https://cms.blockworks.co/ftx-users-band-together-had-entire-net-worth-on-there-oops/" target="_blank" rel="noreferrer noopener">customers finding their holdings locked up</a> on FTX for the SEC to figure out how to better serve investors.







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Coinbase, Ripple CEOs Blame SEC for FTX User Strife

Sam Reynolds

<div id="highlights-block_61c464f2b8cf5" class="highlights">
 <ul>
 <li>Ripple CEO Brad Garlinghouse said on Twitter that Ripple’s on-demand liquidity have more than doubled since Q3 last year, despite a halt in the US</li>
 <li>Garlinghouse called the attack on Ripple an attack on crypto as a whole, and criticized the SEC’s policy of ‘strategic ambiguity’ towards digital assets</li>
 </ul>
 
</div>



One year ago, then-SEC chair, Jay Clayton, used his last day in office to deliver a lump of coal to Ripple Labs, a company that he thought had been naughty, not nice.



The SEC, on one of the last business days before the Christmas holiday, announced it had <a href="https://www.sec.gov/news/press-release/2020-338" target="_blank" rel="noreferrer noopener">charged </a>Ripple Labs, CEO Brad Garlinghouse, and chairman Christian Larsen with conducting an unregistered securities offering.



The complaint was particularly scathing in its critique of Garlinghouse, <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.551082/gov.uscourts.nysd.551082.46.0_2.pdf" target="_blank" rel="noreferrer noopener">noting</a>, &#8220;While he was selling millions of XRP, Garlinghouse frequently told investors that he was invested in XRP, and that he was bullish on the investment.&#8221;



The SEC alleges that Garlinghouse and Larsen took in $600 million from sales of XRP, while being in control of Ripple, and therefore they are personally liable for the securities violations. The agency stopped short of alleging fraud — <a href="https://www.youtube.com/watch?v=P2msnJjMsgg&amp;t=493s" target="_blank" rel="noreferrer noopener">a more difficult charge to prove</a>, according to Gabriel Shapiro, Partner at <a href="https://bsvlaw.com/team/gabriel-shapiro-partner/" target="_blank" rel="noreferrer noopener">BSV Law</a>, who described the case in-depth with his colleague Stephen Palley of <a href="https://www.andersonkill.com/People/Stephen-D-Palley" target="_blank" rel="noreferrer noopener">Anderson Kill</a> in an <a href="https://unchainedpodcast.com/the-secs-lawsuit-against-ripple-and-2-execs-what-you-need-to-know/" target="_blank" rel="noreferrer noopener">interview with Laura Shin</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The ripple case is the most fraud-like non-fraud filing I think I&#39;ve seen. It walks all the way up to the edge of 10b5 and then edges back.&mdash; Palley (@stephendpalley) <a href="https://twitter.com/stephendpalley/status/1341523294344896515?ref_src=twsrc%5Etfw">December 22, 2020</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<div class="wp-block-image"><figure class="alignleft size-medium"><img loading="lazy" decoding="async" width="200" height="300" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg" alt="Ripple CEO Brad Garlinghouse by Christopher Michel, <a href=&quot;https://creativecommons.org/licenses/by/2.0&quot;&gt;CC BY 2.0</a&gt;, via Wikimedia Commons" class="wp-image-13092" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg?w=200 200w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg?w=172 172w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg?w=174 174w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg?w=146 146w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg?w=53 53w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Brad_Garlinghouse_15039005582-200x300.jpeg?w=512 512w" sizes="(max-width: 200px) 100vw, 200px" /><figcaption>Brad Garlinghouse by Christopher Michel, <a href="https://creativecommons.org/licenses/by/2.0">CC BY 2.0</a>, via Wikimedia Commons</figcaption></figure></div>



Predictably, XRP’s price crashed in the weeks after as many exchanges including Coinbase delisted the token. In January 2021, Ripple <a href="https://ripple.com/insights/sec-update-preliminary-ripple-response/" target="_blank" rel="noreferrer noopener">responded to the SEC’s </a>allegations, calling the regulator “out of step” with global affairs and later “picking virtual currency winners and losers.”&nbsp;



But then something else happened. Despite being virtually walled off from the US, the rest of the world moved on and continued to embrace Ripple.



“Proud to say it was Ripple’s strongest year ever,” <a href="https://twitter.com/bgarlinghouse/status/1473727344368041996" target="_blank" rel="noreferrer noopener">tweeted</a> Ripple CEO Brad Garlinghouse recently, pointing out that the protocol’s On-Demand Liquidity network had seen a 130% increase in transactions quarter-over-quarter since Q3 2020 despite the US accounting for zero percent of it.



Garlinghouse said that some of the strongest growth was from entirely new payment corridors such as Japan and crypto-friendly United Arab Emirates.



Earlier this year, Ripple announced the launch of a white-label version of the XRP Ledger specifically designed for developing central bank digital currencies, to capitalize on increased interest in the currency type from central banks.



<h3 class="wp-block-heading">Wild West, or Tamed East?</h3>



As many countries such as the <a href="https://cms.blockworks.co/uae-sees-tokenization-digital-economy-as-key-to-future-growth/" target="_blank" rel="noreferrer noopener">UAE </a>and <a href="https://cms.blockworks.co/hong-kong-and-singapore-take-different-approaches-to-regulating-digital-assets/" target="_blank" rel="noreferrer noopener">Singapore</a> develop comprehensive digital asset frameworks to regulate the industry — and at the same time attract significant inbound investment — the US is maintaining a policy of “strategic ambiguity”, according to Garlinghouse, with regulators stuck with a view that crypto continues to be the ‘Wild West’ despite the east having figured out a way to regulate it.



“As Chair Gary Gensler seeks to expand its remit, he has taken an aggressively anti-crypto approach and companies are already moving outside the US. Web2 was built with many American companies, but Web3?” Garlinghouse <a href="https://twitter.com/bgarlinghouse/status/1473727347878772737?s=20" target="_blank" rel="noreferrer noopener">tweeted</a>.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Ignoring its prior statements, the SEC today won’t answer questions about the legal status of ETH, much less anything else. Is the agency actually living up to its mission of protecting investors with regulation by enforcement and what Hester Peirce calls ‘strategic ambiguity’?”</blockquote>



Garlinghouse ended his Twitter thread by calling on his followers to write to their local Congressmen to ask them to take action on crypto legislation, “before the industry gets…another lump of coal.”



XRP is up almost 115% from the day prior to the SEC&#8217;s suit, according to <a href="https://www.coingecko.com/en/coins/xrp">Coi</a><a href="https://www.coingecko.com/en/coins/xrp" target="_blank" rel="noreferrer noopener">n</a><a href="https://www.coingecko.com/en/coins/xrp">Gecko</a>, with around 17% of that happening in the past week. From a low at 17 cents on Dec. 29, it&#8217;s more than quintupled and is currently trading for 97 cents, down from a peak this year in April of $1.84.




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This story was updated on December 23 at 12:05 pm ET to clarify the percentage change in the XRP price over the past year.



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