Earlier this week, SNDY Judge Torres released an order denying the second joint request by Ripple and the SEC for the court to “to state that it would (1) “dissolve” the Court’s permanent injunction ordering Ripple to obey the law, and (2) cut the monetary penalty imposed against Ripple by more than half.”

This is not the case’s first appearance on the blog. Ann has covered this litigation before here. Joan has also discussed it. I covered a change in SEC practice from discovery from the case. For context, this litigation has been going on since 2020. Judge Torres succinctly summarized some of the past:

The SEC’s theory was that Ripple offered and sold a security called “XRP” without first registering it with the Agency, so investors were deprived of information about XRP and Ripple’s business that would allow them to make informed investment decisions. ECF No. 46. In 2023, the SEC moved for summary judgment, contending that it was “indisputable” that Ripple violated the Securities Act. ECF No. 837 at 50, 53, 63. In other words, the SEC asked the Court to rule in the Agency’s favor because Ripple could not win. On July 13, 2023, the Court agreed in part with the SEC, finding that Ripple offered XRP as a security without registration, in violation of the Act, when Ripple sold XRP to certain institutional buyers. SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 328 (S.D.N.Y. 2023).

And this case just keeps generating interesting things. In recent months, the SEC has made some curious decisions–also with ties to this litigation. Earlier this year, the SEC transferred “Jorge Tenreiro, who had overseen a half-dozen lawsuits against crypto exchanges and other platforms that were critical for deciding the reach of the SEC’s authority over the volatile market.” Tenreiro went from leading the crypto enforcement cases “to a role in the agency’s office of information technology.” The WSJ described him as the “key man” for litigation strategy. Opposing counsel Jason Gottleib described him as “a hell of a good litigator and a bulldog, but an ethical bulldog.”

Ripple’s leadership had other comments about Tenreiro:

David Schwartz, the chief technology officer at Ripple, has facetiously predicted that Tenreiro will become a movie critic.

Stuart Alderoty, Ripple’s top lawyer, joked that Tenreiro had been reassigned to Macrodata Refinement, referring to the department where workers have to classify numbers with seemingly little purpose in hit TV show “Severance.”

Ripple CEO Brad Garlinghouse has suggested that Tenreiro’s next career move could be working for tech support at Best Buy. “I guess he could try Geek Squad next?” he quipped.

He did not end up at any of those places. He’s now a partner at Bernstein Litowitz Berger & Grossmann LLP.

Returning to the order, Ripple and the SEC asked how the court would have ruled if it had brought a motion under Rule 60(b). The Rule allows courts to set aside or modify judgments for a narrow range of reasons, ordinarily including mistake, excusable neglect, fraud, a void judgment, or “any other reason that justifies relief.” This is a narrow exception because it disturbs the finality of judgments.

Judge Torres was not persuaded. She first reviewed the state of play:

Not that long ago, the SEC made a compelling case that the public interest weighed heavily in favor of a permanent injunction and a substantial civil penalty. The Agency made clear that the public has a right to “full and fair disclosure of information . . . in the sales of securities,” and it explained why a penalty and injunction against Ripple would protect that interest. Motion for Judgment at 25 (quoting Pinter, 486 U.S. at 646). First, a penalty was necessary because Ripple had violated the law. Id. at 4. In fact, the Agency believed that a “significant penalty that [was] not just a ‘slap on the wrist’ or ‘cost of doing business’” was warranted because of the enormous sums of money Ripple made in violating the law and Ripple’s incentives to continue doing so. Id. at 8–9, 24 (emphasis added) (quoting SEC v. Rajaratnam, 918 F.3d 36, 45 (2d Cir. 2019)).

Second, the SEC pressed for a permanent injunction because Ripple’s misconduct was reckless and likely to continue. The Agency claimed that Ripple had deliberately violated the Securities Act for eight straight years because it knew that registering institutional offerings of XRP would damage its business. Id. at 5. And it likely continued to violate the law even after the Court issued its Summary Judgment Order. Id. at 8–9. Ripple’s conduct was so egregious, according to the SEC, that the Agency “fully expect[ed]” Ripple “to keep hidden the information that Section 5 requires be disclosed for the benefit of investors.” Id. In other words, all signs pointed to the likelihood that, without an injunction, Ripple would continue to disregard the laws of Congress in a manner that would hurt investors.

Ripple and the SEC both asked the Court to grant relief from the order because the SEC’s priorities and approach has changed on crypto. The Court was not persuaded:

The Court is not persuaded. For starters, none of the enforcement actions cited by the parties involved an injunction or a civil penalty. In each of those cases, the SEC dismissed its case before a court found a violation of federal securities laws. Moreover, dissolution of the injunction as a precondition to the termination of the parties’ appeals is only necessary because the parties, in their Agreement, made it so. If the parties genuinely wish to end this litigation today, they are free to withdraw their appeals. Or, if the parties wish to make the Court’s orders go away, they may utilize the “primary route” that Congress has created for parties to “seek relief from the legal consequences of judicial judgments,” which is to take an appeal. U.S. Bancorp, 513 U.S. at 27. Neither option involves requiring this Court to absolve Ripple of its
obligations under the law. Id. at 26.

The Court respects the freedom of parties to amicably resolve their disputes. It is also true that the SEC, like any other law enforcement agency, has discretion to change course after an enforcement action is initiated. But the parties do not have the authority to agree not to be bound by a court’s final judgment that a party violated an Act of Congress in such a manner that a permanent injunction and a civil penalty were necessary to prevent that party from violating the law again. See id. at 26, 29. For that, the parties must show exceptional circumstances that outweigh the public interest or the administration of justice. Major League Baseball, 150 F.3d at 153. They have not come close to doing so here.

In thinking about this, I can draw a few conclusions. First, wow, Ripple or the crypto industry really has an astounding amount of juice now. I don’t know if anything will ever come out to show that anyone at Ripple asked for the SEC to reassign or otherwise alter the job duties of particular SEC lawyers or if the current SEC just did it on its own to address the perceived overreaches of the Gensler-era SEC. I’m also not aware of any instance where a change in administration has resulted in similar maneuvers on cases or personnel.

Thinking about the appeal, it’s going to be interesting to see how the SEC will argue against itself. So I looked at the docket for the appeal. Golly, the SEC’s brief was filed on January 15, 2025. Jorge Tenreiro is on it. In April, the SEC and Ripple agreed to hold the appeal in abeyance. Now that this run at the SDNY has fizzled, it’s going to be interesting to see what they and the Second Circuit do.