SEC clarifies Brad Garlinghouse’s liability in Ripple lawsuit

The U.S. Securities and Exchange Commission (SEC) filed an amended version of the lawsuit against Ripple. The regulator’s focus was on the actions of individual defendants—the company’s CEO Brad Garlinghouse and co-founder Chris Larsen.

Lawyer Jeremy Hogan called it unusual for the SEC to assign individual liability in a case like this. In his view, Ripple’s attorneys’ chances of success are slim in light of the regulator’s statements about the personal involvement of the company’s executives.

The commission said that the company’s leadership manipulated the token’s price and sold 14.6 billion XRP for more than $1.38 billion.

“Larsen and Garlinghouse played a significant role in discussions and approvals of institutional Ripple sales and other XRP offerings to individual investors,” the SEC states in the complaint.

The regulator also demanded that the defendants provide notice containing a warning about the potential designation of XRP as a security.

According to Hogan, such documents are protected by attorney‑client privilege, but granting the SEC’s requests could worsen the position of Ripple’s leadership.

In December 2020, the SEC filed a lawsuit against the California company, accusing it of selling unregistered securities in the form of tokens worth $1.3 billion. The defendants also included Garlinghouse and Larsen.

Ripple’s CEO said the company has always worked in partnership with regulators. He described the suit as a “terrible precedent” for the entire cryptocurrency industry.

In January 2021, Ripple’s lawyers asked the commission why it does not treat Bitcoin and Ethereum as securities.

In the wake of SEC complaints, major platforms halted support for the XRP token. Among them Coinbase and OKCoin, Galaxy Digital, Bitstamp, B2C2, eToro and Kraken.

The head of the regulated platform Bakkt, Gavin Michael, ruled out adding the coin to new products, and Grayscale Investments announced the liquidation of its XRP-based investment trust.

The issuer 21Shares excluded the Ripple token from its exchange-traded products. The Bitwise Asset Management removed it from its flagship index fund.

At the end of January 2021, a Florida resident filed a lawsuit against Ripple Labs and Garlinghouse. The plaintiff alleges the defendants violated state securities laws and engaged in unlawful enrichment.

Tetragon Financial Group, which led a $200 million Series C financing round in 2019, also brought claims against the company.

Earlier, representatives of the SEC and Ripple questioned the possibility of out-of-court settlement of the suit. Preliminary hearings are scheduled for February 22.

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