Ripple’s X-Border Business May Be Collateral Damage in SEC Suit

One of the longest running legal cases impacting crypto’s regulatory future is potentially nearing resolution.

The case, between cryptocurrency company Ripple Labs and the U.S. Securities and Exchange Commission (SEC), centers around whether Ripple’s XRP token is a security and has gone through several iterations since its 2020 start.

On Wednesday (Aug. 7), the scales of justice fell partly in favor of Ripple with the company ordered by a federal judge to pay a civil penalty of $125 million, along with an injunction against future securities law violations.

The SEC was seeking fines and penalties totaling $2 billion.

“The SEC asked for $2B, and the Court reduced their demand by ~94% recognizing that they had overplayed their hand,” Ripple CEO Brad Garlinghouse said in a Wednesday post on X.

Garlinghouse added that the court’s ruling was “a victory for Ripple, the industry and the rule of law” and that “the SEC’s headwinds against the whole of the XRP community are gone.”

Many in the digital asset space have been watching closely how the Ripple case has been playing out due to its broader implications for the SEC’s regulatory power over crypto. And the judge’s decision did little to shed further clarity over the ultimate question foundational to the SEC’s suit: whether crypto assets are securities.

The court ruling also puts the future of the use of Ripple’s XRP token for cross-border payments, at least by U.S. entities, in question.

The Court Case the Crypto Industry Has Been Waiting For

Since the filing of the first SEC suit against Ripple Dec. 22, 2020, crypto firms have been waiting in the wings for a final ruling on whether digital assets are, or are not, securities.

While they wait, they’ve continued selling and minting cryptocurrencies regardless.

As Amias Gerety, Partner at QED Investors, told PYMNTS last summer, “business as usual” can be the best choice for embattled crypto players because it could support their legal posture.

Gerety also added that if the SEC were to eventually win in court, the classification of crypto tokens as securities wouldn’t destroy the digital asset industry in the U.S.

But Ripple’s continued sale of its XRP token while the SEC suit was ongoing without a resolution drew comment from the Judge overseeing the case.

“To be clear, the Court does not today hold that Ripple’s post-Complaint sales have violated Section 5.5,” reads Wednesday’s legal decision. “Rather, the Court finds that Ripple’s willingness to push the boundaries of the Order evinces a likelihood that it will eventually (if it has not already) cross the line. On balance, the Court finds that there is a reasonable probability of future violations, meriting the issuance of an injunction.”

And the injunction means that while legally per the decision XRP is “little more than an alphanumeric cryptographic sequence” and not itself a security, Ripple cannot continue selling the token to U.S. accredited investors.

What the Ruling Means for Cross-Border Payments

Per the judge’s statement, Ripple had been selling its XRP token under “Regulation D” in the U.S., which — due to the Regulation’s “bad actor disqualification” provision — it can no longer do. That’s because the $125 million fine Ripple was subject to in the same ruling disqualifies it. Ripple asked the judge to waive the disqualification but the judge declined.

And the disqualification could imperil the use of XRP to facilitate payments, particularly cross-border ones.

Blockchain-based cross-border solutions, particularly stablecoins, are being increasingly embraced by firms looking to find a better way to transact and expand internationally.

“This core problem is how long it takes to move money across borders … you’re being charged serious rates to move money across borders, and you also have an inability to track those payments and know they’ve arrived with certainty,” Brooks Entwistle, senior vice president of global customer success and managing director at Ripple, told PYMNTS in an earlier discussion. “As these businesses grow, it comes with the need to really move value faster, and in more places.”

PYMNTS Intelligence finds that, when it comes to cross-border payments, blockchain solutions could offer advantages over traditional systems. That’s because blockchain’s high throughput, low fees and 24-hour availability could remove much of the friction of cross-border transactions.