Ripple CEO Brad Garlinghouse has revealed that the company considered shutting down after facing a lawsuit from the US Securities and Exchange Commission (SEC) in 2020 over its XRP token. Garlinghouse explained that Ripple’s leadership debated distributing its XRP reserves among shareholders and ending operations, but ultimately chose to defend the company to protect the jobs of hundreds of employees.
Ripple’s legal struggle and financial burden
The decision to stay operational came at a high cost. Over four years of legal battles, Ripple spent approximately $150 million in legal fees, and its US business activities slowed significantly for about five years as a consequence of the ongoing litigation.
The SEC not only targeted Ripple as a company but also named Garlinghouse personally in the lawsuit due to his sales of XRP. Regulators proposed dropping the case against him individually in exchange for a fine, but he declined, maintaining that both he and Ripple had acted within the law.
Garlinghouse emphasized that shutting down would have risked hundreds of jobs and explained that both he and Ripple stood their ground to ensure the company’s survival despite tremendous legal pressure.
XRP versus Bitcoin: Comparing transactions and technology
Garlinghouse highlighted differences between XRP and Bitcoin, noting that while an XRP transaction typically completes within four seconds and costs less than a cent, a Bitcoin transaction can take about ten minutes and may cost around $10. He explained that Ripple develops and sells financial software to banks and institutions, rather than individuals.
The company’s products use the open-source XRP Ledger to enable quick, low-cost transactions for clients in the financial sector.
Mini dictionary: XRP Ledger, an open-source blockchain designed for fast, efficient, and low-cost cross-border payments, serving as the underlying system for XRP transactions.
| Aspect | XRP | Bitcoin |
|---|---|---|
| Average transaction speed | 4 seconds | 10 minutes |
| Average fee per transaction | Less than 1 cent | About $10 |
| Intended use | Bank and financial institution payments | Peer-to-peer digital cash |
SEC lawsuit and regulatory clarity concerns
Garlinghouse described the SEC’s approach as outdated, arguing that regulators had attempted to apply financial rules from earlier decades to emerging blockchain technologies. He cited the swift legal reforms that supported the internet industry in the mid-1990s, and suggested that the crypto industry required similarly clear regulations to grow responsibly.
Despite Ripple’s requests for guidance, the SEC insisted that XRP constituted a security rather than a currency or commodity. Garlinghouse argued that securities typically offer holders equity or decision-making power within a company, which was not the case for XRP buyers, who received neither shares nor dividends from Ripple.
Ongoing battle and aftermath
Ripple remains a privately held company, having raised capital from investors through equity funding in 2012, 2015, and 2016. Garlinghouse maintained that while Ripple held substantial XRP reserves, it did not control the XRP Ledger, and likened XRP’s function more closely to Bitcoin than corporate stock.
The SEC’s action was civil, not criminal, but posed steep penalties. During his visits to the SEC office between 2017 and 2019, Garlinghouse represented himself and consistently denied categorizing XRP as a security, stating he simply sought to explain Ripple’s technology to regulators. He said he was never told by SEC officials that they considered XRP a security during these meetings.
Garlinghouse questioned whether the SEC’s logic would make every XRP seller liable for securities law violations, and described the legal tactics as “distasteful” and “maybe unethical.”
After a four-year court battle, Ripple prevailed, though appeals were considered under the former SEC chair. Garlinghouse noted that a change in SEC leadership during the legal process led to a more open dialogue between the agency and crypto companies.
