SEC v. Ripple Labs: The Torres Ruling, Penalty, and Appeals

The Securities and Exchange Commission’s case against Ripple Labs, filed in December 2020, ended in August 2025 with the district court’s judgment intact: Ripple owes a $125,035,150 civil penalty and remains under a permanent injunction barring future violations of the Securities Act’s registration provisions. The lawsuit accused Ripple of selling roughly $1.3 billion of the digital token XRP without registering it as a security. Judge Analisa Torres split the difference in July 2023, holding that Ripple’s direct sales to institutional buyers were unregistered securities transactions, while its anonymous sales of XRP on public exchanges were not. Both sides appealed, tried to settle, and ultimately walked away, leaving Torres’s ruling as the last word.

What the SEC Alleged

The SEC filed suit on December 22, 2020, in the U.S. District Court for the Southern District of New York, naming Ripple Labs, CEO Brad Garlinghouse, and co-founder and executive chairman Chris Larsen (Case No. 1:20-cv-10832).¹ The complaint alleged that Ripple had raised more than $1.3 billion by selling XRP without registering it as a security under Section 5 of the Securities Act of 1933.² The SEC’s theory was that XRP buyers were effectively investing in Ripple’s business, which made the token an “investment contract” under the test from the Supreme Court’s 1946 decision in SEC v. W.J. Howey Co.

Two categories of Ripple’s sales mattered most. About $728.9 million came from direct sales to institutional buyers such as hedge funds, done through written contracts with lockups and resale restrictions. Another $757.6 million came from “programmatic” sales on digital asset exchanges, where trading algorithms placed XRP into the open market and buyers had no way of knowing they were purchasing from Ripple at all.³ Larsen personally sold at least $450 million of XRP and Garlinghouse roughly $150 million, both through similar exchange channels.

The July 2023 Ruling

On July 13, 2023, Torres issued a partial summary judgment that split the case in two. She granted the SEC’s motion in part and Ripple’s motion in part.³

Institutional Sales Were Securities

Torres held that Ripple’s direct sales to institutional buyers satisfied all three prongs of Howey. Buyers invested money, their returns were tied to Ripple’s success through a common enterprise, and they reasonably expected profits from Ripple’s efforts. The written contracts, lockup provisions, resale restrictions, and Ripple’s own marketing to those buyers made the analysis straightforward. Institutional purchasers knew they were funding Ripple and betting on XRP’s appreciation.³

Programmatic Exchange Sales Were Not

The exchange sales were different. Because the trades were anonymous and automated, buyers had no idea whether their XRP came from Ripple or from any other seller. Without that knowledge, Torres reasoned, they could not have reasonably expected profits from Ripple’s specific managerial efforts. The third prong of Howey failed, and those sales were not securities transactions.³

Torres applied the same reasoning to the personal exchange sales by Larsen and Garlinghouse, and to XRP distributed to employees and third-party developers as compensation, because those recipients did not invest money in the traditional sense.³

The Principle Behind the Split

Torres wrote that XRP itself “is not in and of itself a ‘contract, transaction[,] or scheme’ that embodies the Howey requirements.” A digital token, she reasoned, could be the subject of an investment contract in one setting without being a security in every setting, much like gold or silver. The legal status of any given sale turned on the totality of circumstances around that sale.³ She rejected Ripple’s proposed “essential ingredients” test, which would have required formal post-sale contractual obligations before a transaction could qualify as an investment contract, calling that approach inconsistent with Howey’s economic-reality framework.

Claims Against Garlinghouse and Larsen Dismissed

On October 19, 2023, the SEC voluntarily dismissed with prejudice its remaining aiding-and-abetting claims against Garlinghouse and Larsen. Torres had already ruled that their personal XRP sales were not securities transactions, and with the remaining claims gone, neither executive faced any further liability.⁴⁵

The Penalty and Injunction

The SEC initially sought roughly $2 billion in disgorgement and civil penalties for the institutional sales. Torres rejected disgorgement entirely and instead imposed a civil penalty of $125,035,150, calculated across 1,278 transaction-level violations. She also entered a permanent injunction barring Ripple from future violations of the Securities Act’s registration provisions and declined to waive the “bad actor disqualification,” which would ordinarily block Ripple from using the Regulation D exemption for private securities offerings for five years.⁶ Final judgment was entered on August 7, 2024.

Appeals, a Rejected Settlement, and the End

Both sides appealed to the Second Circuit. The SEC filed its notice on October 3, 2024, and Ripple cross-appealed a week later (Case Nos. 24-2648 and 24-2705).⁷ The SEC’s opening brief, filed January 15, 2025, argued that Torres’s programmatic-sales ruling “conflicts with decades of Supreme Court precedent.”⁸ Before Ripple’s response was due, the parties jointly asked the Second Circuit to pause the case while they negotiated.

On May 8, 2025, the SEC and Ripple announced a settlement. Ripple would pay $50 million out of the $125 million being held in escrow, get the rest back, and see the permanent injunction dissolved.¹ SEC Commissioner Caroline Crenshaw dissented publicly, calling the deal a capitulation that “razed” the penalty ruling and vacated a court-ordered injunction requiring Ripple to comply with the law.⁹

Torres blocked it. On June 26, 2025, she denied the parties’ joint request for an indicative ruling that would have let them vacate the injunction and cut the penalty. A final judgment, she wrote, is not “private property” belonging to the litigants; it serves the legal community as a whole. She found no “exceptional circumstances” that would justify undoing the judgment, and noted that if the parties simply wanted the case over, they could withdraw their appeals without asking the court to dismantle its ruling.¹⁰

That is what happened. Garlinghouse announced on June 27, 2025, that Ripple would withdraw its cross-appeal, and on August 7, 2025, both parties filed a joint stipulation of dismissal in the Second Circuit.¹¹ The district court’s judgment remained in place: the $125,035,150 civil penalty and the permanent injunction stand as entered.¹²

The SEC did give Ripple one separate concession. On August 8, 2025, the Commission issued a waiver of the “bad actor” disqualification under Regulation D, restoring Ripple’s ability to conduct private securities offerings to accredited investors. The SEC said “good cause exists” for the waiver, pointing to its earlier intention to resolve the case in a way that would have dissolved the injunction.¹³

What the Ruling Settled, and What It Didn’t

Torres’s institutional-versus-programmatic distinction became one of the most contested questions in digital-asset regulation almost immediately. Judge Jed Rakoff, sitting in the same courthouse, disagreed in SEC v. Terraform Labs weeks after Torres ruled, holding that “Howey makes no such distinction between purchasers” and that secondary-market buyers had “every bit as good a reason” to expect profits from a token issuer’s efforts as institutional buyers did.¹⁴ In January 2025, Judge Katherine Polk Failla certified an interlocutory appeal in SEC v. Coinbase, citing “substantial ground for difference of opinion” between the Ripple and Terraform rulings.¹⁵

Because both parties dropped their Ripple appeals rather than push for a Second Circuit ruling, the appellate question of how Howey applies to exchange-traded crypto tokens is still open. Torres’s decision binds the parties before her but is not circuit precedent, and no federal appeals court has yet weighed in. The Coinbase appeal, if it proceeds, could be the first vehicle for that ruling.⁸

1
SEC.gov. SEC Litigation Release No. 26306
2
Investopedia. SEC vs. Ripple
3
U.S. District Court, S.D.N.Y. SEC v. Ripple Labs, Inc., No. 20 Civ. 10832
4
Fortune. SEC Drops Charges Against Ripple’s Garlinghouse, Larsen
5
Cleary Gottlieb. Ripple CEO Brad Garlinghouse in Dismissal of All SEC Claims
6
Fenwick. SEC v. Ripple Decision Makes Waves in Digital Assets Enforcement
7
CCH. SEC v. Ripple Labs Joint Motion
8
Katten. Crypto in the Courts: Five Cases Reshaping Digital Asset Regulation
9
SEC.gov. Commissioner Crenshaw Statement on Ripple Settlement
10
Nutter. SEC v. Ripple Labs Order
11
Reuters. Ripple to Drop Cross Appeal Against US SEC in Crypto Lawsuit
12
SEC.gov. SEC Litigation Release No. 26369
13
SEC.gov. SEC Order Under Rule 506(d)(2)(ii)
14
Akin Gump. Judges in the Southern District of New York Divided on Whether a Token Is a Security
15
Thompson Coburn. Fast Developments in Treatment of Crypto Assets Under Federal Securities Laws