Annotated Guide to Reading the SEC v. Ripple Complaint

If this is what you came here for: the annotated version to the SEC vs Ripple complaint is here

Some initial thoughts:

** This is unlike some of the other cases we have seen in the crypto space. Unlike the Block.one settlement, this one would be more similar in terms of process (and likely ugliness) as the Kik / SEC battle.

** More so, I personally think that what’s really insane about this complaint is that it actually names the founder and the COO in their individual capacities — thereby naming them all jointly liable along with the company. I have yet to see something like this in the crypto space (in terms of legal action)…which brings me to my next point:

** Perhaps no surprise to those who have been in the crypto industry for the past few years, but the absolute extent to which Chris Larsen (founder) and Brad Garlinghouse (COO) went to create a market for XRP, which had no use case/adoption from the start (as admitted by Ripple, according to the complaint) — to personally making over $700m in cash for the two of them. The level of marketing, promotion, PR, and all-around..corporate snake oil (I don’t use this word often, truly) that they pulled off is really quite …something.

** Sidenote: just thinking around some of the red flags that even institutional investors should have be aware of- the fact that the 20% of total XRP supply was transferred immediately into the hands of the executives upon XRP supply being set— with zero vesting schedule/ lock up- is so insane to me. This kind of set up will likely never be accepted in a ‘traditional’ institutional fundraise round, but I guess in crypto, you really do see everything.

** Lastly (and remember I am NOT a lawyer!!)— I think this is pretty much a win in the bag for the SEC here— all the set up done in the complaint is too good (and to be honest, a lot of self-owns by Ripple themselves too!), and also explains likely why Ripple has been so…extra aggressive in its response. According to the complaint, the tolling agreement (this basically suspends statute of limitations, almost always bad news for a defendant to sign b/c it allows the SEC in this case to have more time to build up a case..) was signed in April of 2019. My guess is that negotiations/ settlement discussions have failed miserably.

**Another thing that is super important to note is that the only charges here are around selling unregistered securities- so no criminal charges, no 'jail time’— nothing that’s perhaps as DRAMATIC as people wanted this to be. Yet, even as there are some who feel vindicated and want to see Ripple go out with a big L— I think there are a lot of things here that will be good to debate/ examine (for example- there was some things that remained quite unclear- i.e. the discussion around categorizing currencies/ securities).

Anyway, just some really quick off-the-cuff thoughts- I’ve really tried to keep a lot of personal opinions from coloring the way I annotated and analyze this complaint, but keep in mind that they are done in real-time and record unfiltered comments— and remember of course that a complaint is by no means final, and the facts are always chosen carefully against the side of the Defendant (I.e. Ripple/ Larsen/Garlinghouse).

Hope that the annotation helps guide you to review the facts here for yourself, and as always- I encourage you to read all perspective and do your own research when possible. Happy new year all!

-Katherine