The headline "Ripple settles with SEC" ran across dozens of publications in 2025. It was wrong — or at least incomplete enough to mislead anyone making a financial decision based on it.
What actually happened was procedurally messy, legally consequential, and fundamentally different from what most coverage suggested. The case didn't end with a handshake and a reduced fine. It ended with a judge's rulings left standing, a proposed penalty reduction denied on a technicality, and both sides dropping their appeals without any new court order entered in their favor.
Then, months later, regulatory clarity arrived from an entirely different direction.
Here is what actually happened — and what it means.
What the SEC Alleged: December 2020
The SEC filed its complaint on December 22, 2020 — the final days of Chair Jay Clayton's tenure. Named defendants: Ripple Labs, Inc., CEO Brad Garlinghouse, and co-founder Chris Larsen.
The central allegation: Ripple raised approximately $1.3 billion through the unregistered sale of XRP as a security, violating Section 5 of the Securities Act of 1933.
The legal framework was the Howey test — drawn from SEC v. W.J. Howey Co. (1946), the Supreme Court's four-part definition of an "investment contract" (and therefore a security): an investment of money, in a common enterprise, with an expectation of profits, derived primarily from the efforts of others. The SEC argued XRP buyers expected to profit from Ripple's own managerial efforts.
What the complaint did not allege: that all XRP everywhere was a security. The focus was on Ripple's direct institutional distribution contracts — sales made under written agreements to hedge funds and professional counterparties going back to 2013. Secondary market trading between individual holders was not the target.
For context on what XRP is as a technology and how the XRP Ledger operates, see Part 1 of this series on the XRP Ledger's consensus mechanics.
The Split Ruling: What Judge Torres Actually Decided (July 2023)
On July 13, 2023, Judge Analisa Torres of the Southern District of New York issued the most consequential US crypto securities ruling to date. Her core finding: it is the sale structure, not the token itself, that determines whether a transaction constitutes a securities offering.
Her summary judgment split the case into three distinct findings:
Institutional sales were securities. The 1,278 direct transactions in which Ripple sold XRP to hedge funds and institutional counterparties under written contracts satisfied the Howey test. Those buyers knew they were purchasing from Ripple and could reasonably expect to profit from Ripple's managerial efforts.
Programmatic exchange sales were not securities. Ripple's algorithm-driven sales through public crypto exchange order books — where counterparty identity was unknown — did not satisfy Howey. Anonymous buyers on the other side had no way of knowing they were transacting with Ripple and therefore could not form a reasonable profit expectation tied to Ripple's efforts.
Secondary market trades were not securities. Individual XRP holders selling to each other on exchanges were not participating in any Ripple investment contract.
The practical implication of Torres's framework: the same token can be involved in a securities offering in one context and not in another. Context — specifically who is selling, to whom, under what agreement — is determinative.
A critical caveat: this ruling bound only Judge Torres's court in the Southern District of New York. It was not a Supreme Court holding or a statutory definition. Both parties filed appeals to the Second Circuit Court of Appeals (case no. 24-2648). The SEC appealed the programmatic sales finding; Ripple cross-appealed the institutional sales finding and the penalty. The personal charges against Garlinghouse and Larsen were dropped by the SEC in October 2023.
The Penalty Order: $125 Million and an Injunction (August 2024)
On August 7, 2024, Torres issued the remedies order.
The civil monetary penalty — a fine paid to the government as a regulatory sanction, distinct from disgorgement (a remedy requiring a defendant to return ill-gotten gains) — totaled $125,035,000, calculated transaction-by-transaction across the 1,278 institutional sales.
The SEC had originally sought approximately $876 million, including disgorgement of profits and prejudgment interest. Torres rejected disgorgement entirely, finding the SEC had failed to demonstrate measurable investor harm from Ripple's institutional XRP sales.
She also issued an injunction: Ripple is barred from future violations of Section 5. Any future institutional XRP sales must be either registered with the SEC or qualify for a valid exemption. A five-year Regulation D "bad actor" disqualification — preventing Ripple from using private placement exemptions — was also imposed.
How the Case Actually Closed: Appeals Dropped, Original Rulings Left Standing (2025)
Following the change in US administration in early 2025, new SEC leadership moved to wind down the case. The parties reached a proposed arrangement: the SEC would retain $50 million of the $125 million penalty held in escrow and return $75 million to Ripple, and the injunction against institutional XRP sales would be lifted.
This required Judge Torres to modify her August 2024 order. The parties filed a joint motion seeking approval in May 2025.
On May 16, 2025, Torres denied it.
Her reasoning was procedural. The parties had not satisfied Federal Rule of Civil Procedure 60(b), which requires a showing of "exceptional circumstances" to vacate or modify a final judgment. The filing was styled as a settlement approval motion rather than the specific post-judgment relief that Rule 60(b) governs.
Rather than refile under the correct procedural standard, both parties chose to drop their appeals. By joint stipulation, both the SEC's appeal and Ripple's cross-appeal were dismissed. The Second Circuit formally approved the dismissal on August 22, 2025.
The operative legal result: Torres's original 2023 and 2024 rulings stand as final law. The $125,035,000 penalty stands. The institutional XRP sales injunction stands. The programmatic exchange sales finding — not securities — also stands.
One separate administrative action followed: on August 8, 2025, the SEC granted Ripple a "bad actor" waiver under Regulation D, administratively removing the five-year disqualification from Torres's order. This is a discretionary SEC action, not a court ruling, and is separately reversible.
On the $50M arrangement: Whether the proposed net-$50M deal was implemented through any mechanism other than the court order is not definitively established in the public record as of mid-2026. The most supported reading is that the $125M court-ordered penalty stands as the operative judgment; the $50M deal was proposed but denied by Torres and was never judicially confirmed. SEC Commissioner Crenshaw publicly dissented from the settlement approach in a statement published May 8, 2025.
The March 2026 Reclassification: Commodity Status by Agency Interpretation
The appeal dismissal resolved the litigation — but without producing a statutory definition of XRP. Clarity on that front came from a different direction six months later.
On March 17, 2026, the SEC and CFTC jointly published a formal interpretive release (SEC Release No. 33-11412, approximately 68 pages) applying a "function-driven classification framework" to crypto assets. An interpretive release is a formal agency document that explains how existing law applies to a new context. It is binding on agency staff under the current administration — but it is not legislation, not a court holding, and can be reversed by a future administration through a new release.
XRP was explicitly named as one of 16 digital commodities. The classification rested on the determination that XRP lacks the financial rights — profit-sharing, income streams, entity ownership claims — characteristic of investment contracts. The analysis drew directly on Torres's rulings, which established that secondary XRP trading does not satisfy Howey.
The jurisdictional result: the CFTC now holds clear primary jurisdiction over XRP spot markets. The SEC's enforcement authority no longer applies to secondary XRP trading between parties. For how this fits the broader reorganization of US crypto oversight, see how the SEC and CFTC carved up jurisdiction over crypto in 2026.
Three limits of the release bear stating plainly:
- Not legislation. The CLARITY Act, which would codify a statutory token taxonomy and make CFTC jurisdiction over digital commodities permanent, had not been enacted as of mid-2026.
- Not permanent. A future SEC or CFTC leadership could rescind or reframe this interpretation through a new release.
- Not blanket coverage. Any future Ripple-structured contract that independently satisfies the Howey test remains subject to securities analysis under existing law.
For how MiCA in the EU and the GENIUS Act in the US are reshaping the regulatory landscape alongside the SEC-CFTC framework, see how MiCA and the GENIUS Act are reshaping regulation for crypto holders.
What XRP Holders Should Actually Take Away
The first spot XRP ETF — the Canary XRP ETF — began trading on Nasdaq on November 13, 2025, with approximately $164 million in first-day inflows. By early 2026, at least six spot XRP ETFs had received SEC approval, including products from Bitwise, 21Shares, Franklin Templeton, Grayscale, and Canary Capital. These approvals reflect the cumulative legal and regulatory clarity created by Torres's rulings and the March 2026 interpretive release.
But "legal clarity" has specific scope. Several distinctions matter for individual holders:
The injunction applies to Ripple the company, not to XRP holders. The court's order bars Ripple from making direct unregistered institutional XRP sales. It places no restriction on individual holders buying or selling XRP on exchanges.
Exchange custody is a separate risk. XRP's commodity classification says nothing about the counterparty risk of holding XRP on a centralized exchange. What holding XRP on an exchange actually means versus self-custody is a distinct question with a distinct answer — the classification doesn't make an exchange safer.
Tax treatment is independent of regulatory classification. The IRS treats crypto as property for tax purposes regardless of how the SEC or CFTC classifies it. XRP's commodity status under the March 2026 interpretive release does not change US tax reporting obligations for holders.
International regulatory treatment varies. The US framework as of mid-2026 does not resolve XRP's regulatory treatment in the EU, UK, Singapore, or Japan, each of which operates its own rulebook. Part 3 of this series examines how institutional adoption and RLUSD's role in cross-border settlement are developing in the post-clarity environment.
This article reflects US agency positions and court rulings as of mid-2026. It is not legal or financial advice. Individual circumstances — including jurisdiction, transaction type, and counterparty — determine which rules apply.
Key Takeaways
- The SEC v. Ripple case closed in August 2025 because both parties dropped their Second Circuit appeals, not through a negotiated settlement. Judge Torres's 2023 and 2024 rulings stand as final law.
- The operative court-ordered penalty is $125,035,000. The proposed net-$50M reduction was denied by Torres on May 16, 2025 for procedural deficiency under Rule 60(b) and was never judicially approved.
- Torres's 2023 ruling established that XRP sold on public exchanges and in secondary market trades does not constitute a securities offering — a finding that now stands as final and was drawn upon by regulators in 2026.
- The March 17, 2026 SEC-CFTC joint interpretive release (No. 33-11412) formally classifies XRP as a digital commodity. This is binding agency interpretation under the current administration — not legislation, and reversible by a future administration.
- Ripple's injunction against direct institutional XRP sales remains in effect. XRP's commodity classification, exchange custody risk, tax treatment, and international regulatory status are each separate considerations requiring separate analysis.
