SEC Ripple Cases can show why ciphers need clearer rules

The legal battle between the US Securities and Exchange Commission (SEC) and Ripple Labs has been going on for almost five years. This is one of the most closely monitored cases as courts decide whether the sale of XRP violates US securities laws.

When people thought Ripple ended after Ripple, after the SEC agreed to a joint settlement, district judge Annalisa Torres refused the request because it was not filed correctly under court rules.

This minor setback appears to some as a procedural delay, while others believe that the legal system is not ready to handle cryptocurrency-related cases.

What happened to the Ripple vs. SEC case?

The Securities and Exchange Commission sued Ripple Labs in December 2020 to break the Investor Protection Act, which applies to stocks or bonds, by raising $1.3 billion without registering XRP tokens as securities.

Ripple fought back saying that XRP is a digital currency rather than security, but Judge Analisa Torres determined in 2023 that Ripple violated the securities law when it sold XRP directly to institutional investors such as hedge funds and investment companies.

She said the transaction still involves investment contracts classified under federal securities regulations, and fined $125 million with a $125 million fine and restrictions on structured sales of XRP to future institutions.

However, Ripple and the SEC reached a new agreement to cut the penalty to $50 million in 2024 and remove the restrictions, but the judge refused the request as it was not filed using the correct legal form.

Why did the judge really say no to the deal?

Judge Analisa Torres refused a joint move from Ripple and the SEC as the legal process failed to comply with Rule 60. This rule allows for changes to final judgments only in the event of rare and exceptional circumstances such as new evidence, fraud, or serious procedural errors.

The judge said Ripple and the SEC wanted to change the fine and remove the restrictions after reaching a new contract without strong enough reason to meet its high legal standards.

The cryptocurrency community believes this setback indicates that the current legal system is slow and strict with regard to blockchain, as trading, innovation and market responses move in real time. At the same time, court decisions and settlement approval can take months or years.

This means investors will remain confused, token prices fluctuate based on rumors, and the cryptocurrency community will speculate about future agreements in court simply because small procedural mistakes in the legal system could cause major delays.

There is no clear path to the crypto regulations yet

The Ripple case is just one example of the big question of how rules for regulating cryptocurrency remain unknown, as the SEC can push forward with major penalties and in other cases quietly remove claims with little explanation.

For example, the agency sued Kraken and Coinbase for selling investment products that were not registered under the securities law, but recently deleted the case after attacking a transaction that appears to change the rules on a case-by-case basis.

The SEC also denounced Terraform Labs for damages after Terrausd Stablecoin collapsed, wiping billions of dollars out of the market but still settled with a small fine.

These events will wonder how enforcement decisions are actually made and whether they reflect a fair or consistent set of standards in cases where they appear to be much larger than Ripple’s situation.

Regulators such as the SEC and CFTC have not passed any major laws that empower them to oversee digital assets, so they still apply the old rules (written in the 1930s or 1940s) to brand blockchain, stubcoin and smart contracts. It is no wonder that judges are not sure what legal standards will apply to these complex disputes. Developers continue to be confused about how to build legal products, and investors don’t know what to invest in.

Cryptocurrency companies are strugglingLe balances growth ambitions with regulatory risks

Cryptocurrency companies face a dilemma and keep their businesses small and limited to avoid attracting regulatory issues or driving growth and innovation. However, there is a risk of facing costly lawsuits and enforcement actions from the SEC due to the lack of clear rules.

Ripple’s long and expensive legal battle shows how difficult it is to survive this uncertain regulatory environment, especially small startups that can’t afford such a costly and time-consuming battle.

The judge’s refusal to settle the Ripples and the SEC was based on the Procedural Act, but it felt like he missed the opportunity to end the long, exhausting story as it was a rare moment of cooperation that many hoped to bring clear guidance.

And in that way, organizations, investors and regulators don’t know how to advance innovation while complying with the law.

Ripple’s legal battle highlights the urgent need for clear crypto regulations

Ripple can still re-correct the movement using Rule 60(b), but as XRP prices fluctuate rapidly with each new headline about the case, investors are nervous and developers must spend more time in court while being cautious.

Regulators also do not say whether or how tokens like XRP are formally classified and regulated under the law. This makes the entire Ripple Case a complex and elicited saga, leaving us with more questions than answers about the future of cryptography regulation and enforcement.

As the cryptocurrency community urgently needs clear guardrails to know how to operate safely and apply ways to plan and grow without sudden legal issues, watchdogs need to act quickly and communicate openly to respond to digital finance.