The US financial watchdog has given up its legal challenge against Ripple Labs, the developer of the XRP cryptocurrency.
All claims against Ripple Labs chief executive Brad Garlinghouse and executive chairman Chris Larsen were cleared by the US Securities and Exchange Commission (SEC).
The SEC voted to dismiss charges with prejudice, in a filing made late on Thursday.
“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.”
Ripple issued a statement calling it “a stunning capitulation by the government”, following almost three years of the two sides butting heads over whether or not XRP should be classified as a security, thus subject to the same regulations as a share offering.
Only two months ago, the regulator sought to appeal the latest major court decision that Ripple's public offering of XRP tokens over cryptocurrency trading platforms did not involve the offer or sale of securities under the Howey Test, where a security contract is defined as any agreement between a promoter and an investor where the investor expects a return based on the promoter's efforts.
In July, district judge Analisa Torres ruled that XRP is sometimes a security but it depends on the buyer. Specifically, the court determined that XRP was a security when sold to institutional investors but not necessarily when purchased by average individuals on public exchanges.
This distinction was based on the expectation of profits; institutional buyers expected profits from Ripple's efforts, while public exchange buyers may not have expected profits.
Applying the Howey Test to the digital age, the court had to decide whether buying XRP with the expectation of profit, driven by Ripple's actions, constituted an investment contract.
Earlier this month, Judge Torres shut down the SEC’s application for an interlocutory appeal and request for a stay of trial.
The SEC made a serious mistake going after Brad & 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. https://t.co/TOsG64ZdEx
— Stuart Alderoty (@s_alderoty) October 19, 2023
Larsen added that the pair was today "legally vindicated and personally redeemed in our battle against a troubling attempt to abuse the rules in order to advance a political agenda to suffocate crypto in America".
"It is a travesty that we were forced to defend ourselves from an ill-advised attack that was flawed from the day it was filed," he said.
"While justice ultimately prevailed, the government’s actions that led to this point raise questions about the origin, and motivation of this lawsuit. It is an abuse by the administrative state that politically connected special interests, with clear and proven conflicts of interest, were able to drag our names through the mud in an attempt to ruin us personally and destroy a company so many have worked so hard, for so long to build.”