Ripple CEO says SEC lawsuit nearly ended company, leadership considered shutdown

Leadership Weighed Company Shutdown

Garlinghouse recently spoke at the University of Kansas School of Business, where he detailed the uncertainty that gripped Ripple during the early days of the SEC lawsuit. He recalled that the company’s legal advisers recommended Swift capitulation rather than contesting the government’s claims.

He explained that Ripple’s executive team, including co-founder Chris Larsen, held discussions about possibly dissolving the company. According to Garlinghouse, both he and Larsen contemplated distributing XRP holdings to shareholders and ending operations completely as an alternative to prolonged legal conflict.

We almost decided to shut down the company when the SEC sued us. We were like, you know, the government has infinite power and resources. Both of us were like…what’s the right answer here? And you know, we could have shut it down and distributed…the XRP to shareholders on a pro rata basis. End of story.

Garlinghouse added that while closing the company would have been an easier and more predictable decision amidst regulatory pressure, it would have been an unfortunate outcome for Ripple’s vision and team.

Legal Advice and Pressure on Executives

David Schwartz, who helped design Ripple’s blockchain technology, further clarified the severity of the legal situation. He said the legal advice at the start of the SEC’s action described Ripple as unsalvageable, urging executives to quickly settle and protect themselves personally, rather than attempt to save the company.

Schwartz suggested the SEC’s strategy may have extended beyond the company to target individuals in leadership roles. He commented that Garlinghouse and Larsen were named as defendants to increase pressure for a settlement, not only targeting the company’s reputation but also raising personal stakes for its principals.

They got advice from lawyers that the company was done, unsavable, and they should cut a deal to save themselves. I think the SEC named Brad and Chris personally because that’s the expected response to such a suit.

Some social media commentators have raised doubts about the plausibility of a multi-billion-dollar firm being forced to consider abrupt closure. However, Ripple’s leadership and counsel have maintained that early legal assessments painted a grim outlook.

The SEC, a regulatory agency overseeing securities markets and investor protection, has pursued numerous enforcement actions in the cryptocurrency sector in recent years.

Mini dictionary: SEC (U.S. Securities and Exchange Commission), an independent U.S. federal agency tasked with regulating securities markets, enforcing securities laws, and protecting investors.

Speculation About Industry Motives

The disclosures of Ripple’s near dissolution have sparked renewed debate about the motives behind the SEC’s aggressive stance. Schwartz added further intrigue by speculating that rival cryptocurrency projects could have influenced regulatory action against Ripple, although he noted he lacked concrete evidence.

In remarks referencing long-standing allegations known as “ETHGate,” Schwartz suggested it is plausible that competing blockchain projects were involved in advocacy or behind-the-scenes actions, though he acknowledged the evidence supporting such claims remains limited.

Despite the eventual decision to continue operations and contest the SEC’s lawsuit, Ripple’s leadership maintains that the challenges faced in late 2020 and early 2021 cast significant doubt on the company’s survival at the time.