SEC vs Ripple Labs: The 2023 Ruling and 2025 Settlement

The Securities and Exchange Commission’s lawsuit against Ripple Labs, filed in December 2020 and settled in 2025, tested whether the cryptocurrency XRP was an unregistered security. After nearly five years of litigation, Ripple paid $50 million and accepted a permanent injunction against future securities registration violations, while keeping a landmark ruling that its sales of XRP on public crypto exchanges were not securities offerings.¹

What the SEC Alleged

The SEC sued Ripple Labs, CEO Bradley Garlinghouse, and co-founder Christian Larsen, arguing that starting in 2013 the company raised more than $1.3 billion by selling XRP without registering those sales as securities offerings.¹ The agency’s theory relied on the Howey test, the Supreme Court’s 1946 framework for identifying an “investment contract”: money invested in a common enterprise with a reasonable expectation of profits from the efforts of others.²

According to the SEC, Ripple’s marketing emphasized XRP’s potential for price appreciation, and Ripple’s work developing the XRP Ledger, promoting adoption, and managing supply supplied the “efforts of others” element. Because Ripple never registered any XRP sales or filed periodic financial reports, the SEC said buyers were denied the disclosures securities laws are meant to guarantee.³

The agency initially sought close to $2 billion in total remedies: roughly $876 million in disgorgement of profits from institutional sales, prejudgment interest, and $900 million in civil penalties.

The July 2023 Split Decision

Judge Analisa Torres of the Southern District of New York issued the case’s defining ruling on July 13, 2023. She divided Ripple’s XRP sales into two categories and reached opposite conclusions for each.³

Institutional Sales Were Securities

Ripple sold approximately $728.9 million worth of XRP directly to hedge funds and other institutional buyers under written contracts. Judge Torres found these were unregistered securities offerings. The buyers were sophisticated, they entered direct agreements with Ripple, they knew the company’s plans for the token, and they bought expecting Ripple’s efforts would increase the value. Every element of Howey was met.³

Programmatic Exchange Sales Were Not

When Ripple sold XRP through public crypto exchanges to anonymous retail buyers, Judge Torres reached the opposite conclusion. Those buyers didn’t know whether their money went to Ripple or another seller. They had no contract with the company and no direct exposure to its promises. The court found no evidence they shared institutional buyers’ expectations that Ripple’s efforts specifically would drive the token’s price.

This was the first major federal ruling to draw a legal line between direct token offerings by an issuer and secondary-market trading, treating the same asset as a security in one type of transaction and not another. The SEC had long resisted that distinction, and the ruling reshaped how crypto companies, exchanges, and their lawyers now think about token distribution.

Final Judgment and the 2025 Settlement

The court entered final judgment on August 7, 2024. The penalty came in far below what the SEC had demanded: a civil penalty of $125,035,150 and an injunction barring Ripple from future violations of the Securities Act’s registration provisions.¹ The court rejected the SEC’s $876 million disgorgement request outright, finding the agency hadn’t identified victims who suffered actual financial harm. That single ruling cut the SEC’s recovery by roughly 85% from what it originally sought.

Both sides appealed. In May 2025, they settled. Under the agreement, both sides dismissed their appeals in the Second Circuit. Of the $125,035,150 Ripple had placed in escrow, $50 million was paid to the SEC in full satisfaction of the penalty, and the rest was returned to Ripple.¹

The parties asked Judge Torres to dissolve the injunction as part of the deal. She refused. The injunction against future registration violations stays in force.⁴ That injunction would normally trigger automatic disqualification from certain Regulation D fundraising exemptions, so the SEC separately granted Ripple a waiver preserving access to those capital-raising tools.

On August 7, 2025, the SEC filed a Joint Stipulation of Dismissal covering Ripple, Garlinghouse, and Larsen. The case that started in December 2020 was formally closed.⁵

What the Outcome Means

Because the case never reached a Supreme Court ruling or a final appellate decision, the July 2023 order carries limited formal precedential weight outside the Southern District of New York. Its practical influence has been larger. The institutional-versus-programmatic split gave the crypto industry a working framework: direct sales to sophisticated buyers backed by marketing about future value look like securities offerings, while exchange-based sales to anonymous buyers who don’t know the seller’s identity do not necessarily meet Howey. Token projects have used that distinction to structure fundraising and distribution ever since.

The settlement also reflects a shift inside the SEC itself. Commissioner Caroline Crenshaw dissented from the settlement terms, describing the resolution as part of “a broader, programmatic shift to dismiss our registration cases in the crypto context.” She warned that accepting a reduced penalty “based on a non-existent framework that may or may not come to fruition potentially years from now” leaves a “regulatory vacuum.”⁶ Whether Congress, the SEC, or a future court fills that vacuum is the open question the Ripple case leaves behind.

1
U.S. Securities and Exchange Commission. Ripple Labs, Inc., Bradley Garlinghouse, and Christian Larsen
2
Justia. SEC v. Howey Co., 328 U.S. 293 (1946)
3
United States District Court Southern District of New York. SEC v. Ripple Labs, Inc. Order on Cross-Motions for Summary Judgment (July 13, 2023)
4
U.S. Securities and Exchange Commission. Ripple Labs, Inc. Order Under Rule 506(d)(2)(ii) of the Securities Act
5
U.S. Securities and Exchange Commission. Ripple Labs, Inc., Bradley Garlinghouse, and Christian A. Larsen
6
U.S. Securities and Exchange Commission. Statement on the Agency’s Settlement with Ripple Labs, Inc.