Ripple CEO says SEC has lost its mission to protect investors

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Brad Garlinghouse, chief executive officer of Ripple Labs Inc., speaks during the Token2049 conference in Singapore on Wednesday, Sept. 13, 2023.

Joseph Nair Bloomberg | getty images

The CEO of blockchain company Ripple has some strong words for the US Securities and Exchange Commission.

Brad Garlinghouse told CNBC’s Dan Murphy at the company’s Ripple Swell conference in Dubai that he thinks the agency has lost one of its key functions as a regulator.

“I think the SEC, in my opinion, has missed its mission of protecting investors. And the question is, who are they protecting in this journey?” Garlinghouse said Thursday. The SEC was not immediately available for comment when contacted by CNBC.

SEC charged Ripple in 2020 And its executives are accused of committing $1.3 billion of securities fraud through the sale of XRP to retail investors. The regulator alleged that Ripple failed to register its ongoing offering and sale of billions of XRP tokens to investors, depriving them of adequate disclosures about XRP and Ripple’s business.

Ripple Scores a Major Win in July A judge ruled that XRP is not a security in itself. Subsequently, a request for an interim appeal to the SEC was denied. Then, in October, the SEC dropped its securities law violation charges against Garlinghouse and Ripple executive Chris Larsen.

The next important step in the case is the treatment search process. According to the proposed schedule presented by the SEC, the SEC has 90 days from November 9 to conduct a remedy search.

“I think it’s a positive step for the industry, not only for Ripple, not only for Chris and Brad, but for the entire industry, that the SEC has put a stop to this in the United States. And I hope “The thawing of permafrost in the United States is truly an amazing industry to see that has immense potential in the world’s largest economy,” Garlinghouse told CNBC.

Garlinghouse hopes the US will move from a situation where crypto regulation is determined by a constant stream of litigation to one where federal laws governing digital currencies are introduced by Congress.

“One of the things that people talk about is, one of the definitions of insanity is doing the same thing over and over again, and thinking you’ll get a different result, the SEC does the same thing over and over again— The bar is doing. And they think, I think, they’ll get a different result at some point,” Garlinghouse continued.

,[Digital asset manager] “I think Grayscale got an important victory in the United States regarding the Bitcoin ETF, where the judge had to talk about a federal agency, the SEC, saying the SEC is arbitrary and capricious,” he said. Referencing an appeals court decision that said the SEC was wrong to reject Grayscale’s application to create a Bitcoin ETF.

“Typically, judges are pretty down the middle and try not to be dramatic – these are hurtful words. So I think at some point, the SEC is going to have to step back and realize that regulation through enforcement Their attitude of, let’s just bring the lawsuit, has to be broken.”

What is ripple?

Ripple is a payments company that specializes in cross-border money transfers via blockchain, a distributed database that records transactions across multiple computers. The company’s RippleNet network is used by financial institutions to send money from one country to another.

Ripple also leverages XRP, a cryptocurrency, to make cross-border payments. The XRP token, most commonly associated with the Ripple company, is meant to act as a type of “bridge” currency between one fiat currency and another as these transactions flow across countries.

So, let’s say you want to send some money from the US to Mexico. Ripple’s technology lets you do this by converting us dollars In XRP, transferring XRP to Mexico, and then converting it into Mexican pesos on the other side.

By doing this, Ripple says, you don’t need to have a pre-funded account on the other side of the cross-border transaction to receive that money.

From Ripple’s perspective this is the business case for XRP. But in its most common use XRP is ultimately a token that investors speculate on. And when its price dropped like a stone like other cryptocurrencies in the 2018 crypto bear market, regulators became concerned about the impact of these digital currencies on retail investors.

In the case of Ripple, unlike Bitcoin, the cryptocurrency is owned primarily by Ripple, which holds a large amount of XRP in an escrow account and sells it on a quarterly basis to a mix of institutional investors and retail investors through sales on cryptocurrency exchanges. Issues tokens. This is a big part of how Ripple makes money.

This has been a major point of contention for the SEC as it pursues its case against Ripple. Ripple, for its part, says that XRP should not be considered a security and is more akin to a currency or commodity. Being designated a security would mean that Ripple would have to file a lot of paperwork and disclosures with regulators, a process that could prove costly.

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