Ripple Labs Inc. CEO Brad Garlinghouse speaks during the Token2049 conference in Singapore on Wednesday, September 13, 2023.

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The CEO of blockchain company Ripple has had some strong words to the US Securities and Exchange Commission.

Brad Garlinghouse told CNBC’s Dan Murphy at the company’s Ripple Swell conference in Dubai that he believes the agency has lost sight of one of its most important roles as a regulator.

“I think the SEC, in my opinion, has lost sight of its mission to protect investors. And the question is, who is she protecting along the way?” Garlinghouse said Thursday. The SEC was not immediately available for comment when contacted by CNBC.

The SEC accused Ripple and its executives in 2020 of committing $1.3 billion in securities fraud by selling XRP to retail investors. The regulator alleged that Ripple failed to register an ongoing offering and sale of billions of XRP tokens to investors, depriving them of adequate disclosures about XRP and Ripple’s business.

In July, Ripple was handed a decisive victory when a judge ruled that XRP itself was not a security. The SEC subsequently denied a motion for interim appeal. Then, in October, the SEC dropped its charges of securities law violations against Garlinghouse and Ripple executive Chris Larsen.

The next important step in this case is the process of identifying remedies. According to a timeline provided by the SEC, the SEC has 90 days from November 9 to conduct remedial discovery.

“I think it’s a positive step for the industry, not just Ripple, not just Chris and Brad, but the entire industry, that the SEC has been brought under control in the United States. And I’m confident that will be the case.” “The thawing of the permafrost in the United States can be a thawing of the permafrost in the United States because we can really see an amazing industry with enormous potential in the largest economy the world is thriving,” Garlinghouse told CNBC.

Garlinghouse hopes the U.S. moves beyond a situation where crypto regulation is dictated by a constant stream of litigation to a point where Congress introduces federal laws governing digital currencies.

“One of the things people talk about is that one of the definitions of insanity is doing the same thing over and over again, and assuming you’re going to get a different result, the SEC does the same thing over and over again. “And “They think, I guess, at some point they’re going to get a different result,” Garlinghouse continued.

“[Digital asset manager] “Grayscale also had, in my opinion, an important victory in the United States regarding the Bitcoin ETF, where the judge had to reach a federal judge who spoke about a federal agency, the SEC, and said the SEC was arbitrary and capricious,” added he added, citing an appeals court ruling that said the SEC wrongly rejected an application from Grayscale to create a Bitcoin ETF.

“In general, judges tend to operate more in the middle and try not to be dramatic – these are damning words. So I think at some point the SEC needs to take a step back and realize that their approach to regulation through enforcement is simply bringing in lawsuits, that has to break.”

What is Ripple?

Ripple is a payments company that specializes in cross-border money transfers via blockchain, a distributed database that records transactions across multiple computers. The company’s RippleNet network is used by financial institutions to send funds from one country to another.

Ripple also uses XRP, a cryptocurrency, to make cross-border payments. The XRP token, often associated with the company Ripple, is intended to act as a kind of “bridge currency” between one fiat currency and another when these transactions are carried out across countries.

Let’s say you want to send money from the USA to Mexico. Ripple’s technology allows you to do this by converting the US dollars into XRP, transferring the XRP to Mexico, and then converting it into Mexican pesos on the other side.

This way, Ripple says, you don’t need to have pre-funded accounts on the other side of a cross-border transaction to receive this money.

From Ripple’s perspective, this is the business case for XRP. But XRP in its most common use is ultimately a token that investors speculate on. And when its price fell like a stone in the 2018 crypto bear market – like other cryptocurrencies – regulators became concerned about the impact of these digital currencies on retail investors.

In Ripple’s case, unlike Bitcoin, the cryptocurrency is predominantly owned by Ripple, which holds a large amount of XRP in escrow and releases tokens quarterly via sales on cryptocurrency exchanges to a mix of institutional and retail investors. This is a big part of how Ripple makes money.

This has been a major point of contention for the SEC as it continues its case against Ripple. For its part, Ripple claims that XRP should not be considered a security and is more similar to a currency or commodity. Classifying it as a security would mean Ripple would have to file a lot of paperwork and disclosures with regulators, a process that could prove costly.

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