Procedural Errors Delay the End of Four-Year Legal Battle

A federal judge has denied a joint bid by the SEC and Ripple Labs to approve their settlement, citing procedural errors just weeks after both sides agreed to drop their appeals and end a four-year legal battle. The proposed deal would have reduced Ripple’s fine from $125 million to $50 million, but technical missteps in filing the documents have temporarily paused the settlement process.

Procedural Errors Block Settlement Approval

U.S. District Judge Analisa Torres said Thursday that even if she had jurisdiction, she would still deny the motion as “procedurally improper.”

The SEC and Ripple had filed for an indicative ruling, a non-binding signal from the court that it would accept a deal dissolving Ripple’s injunction and reducing its $125 million fine to $50 million.

“Judge Torres acted strictly within the bounds of procedural norms,” comments Anna Skvortsova, securities specialist and attorney at investment firm LegalEdge. “Indicative rulings are typically used when a case is on appeal and the trial court no longer has authority to act. However, the parties failed to complete the necessary formalities for such a ruling to be considered.”

Such rulings are used when a case is on appeal and the trial court no longer has authority to act. In this instance, jurisdiction rested with the Second Circuit, where both parties filed cross-appeals after the final judgment in August 2024.

Last month, Ripple Labs and the SEC jointly filed a request to the Second Circuit to suspend those appeals as they “pursue a negotiated resolution” of their case. The filing also confirmed that the SEC would drop its October appeal. However, the Second Circuit has not yet ruled on that request.

But the recent filing to Judge Torres bypassed Rule 60 of civil procedure, which governs relief from final judgments, and failed to demonstrate the “exceptional circumstances” required under that standard.

“The parties have made no effort to satisfy that burden here; their request does not even mention the Rule,” Torres wrote in the May 15 order.

Case History and Recent Turn of Events

The lawsuit dates back to December 2020, when the SEC accused Ripple of raising $1.3 billion through unregistered XRP sales.

In July 2023, Judge Torres ruled that institutional sales violated securities laws but that exchange-based retail sales did not, triggering a ray of optimism in the crypto industry.

“This partial ruling in favor of Ripple was a significant victory not only for the company but for the entire crypto industry,” explains Michael Kovalev, crypto lawyer and founder of consulting firm BlockLegal. “It created an important precedent distinguishing between retail and institutional token sales, which could potentially impact many other cases in this sphere.”

Since Donald Trump’s return to office, the SEC under leadership of former acting chair Mark Uyeda has scaled back crypto enforcement. Lawsuits against Coinbase, Kraken, and many others have been dropped, and new SEC Chair Paul Atkins, confirmed by the Senate last month, is expected to take a far more lenient stance than former chair Gary Gensler.

In its last week announcement, the SEC formally confirmed the $50 million deal. Ripple would pay the reduced fine, with the remaining $75 million in escrow returned to the company.

Parties’ Reaction and Market Impact

“Nothing in today’s order changes Ripple’s wins,” Ripple CLO Stuart Alderoty tweeted following the Judge’s order. “Ripple and the SEC are fully in agreement to resolve this case and will revisit this issue with the Court, together.”

XRP, which has surged over 366% for the past year, was down 1.6% on the day, trading at $2.42, according to CoinGecko data.

“The market reacted moderately as investors understand this is more of a technical hiccup than a fundamental change in the parties’ positions,” comments Elena Maximova, senior analyst at cryptocurrency exchange BitMarket. “Both sides are demonstrating commitment to reaching an agreement, which should ultimately have a positive impact on XRP.”

What This Means for Future Settlement

Despite the judge’s refusal to approve the agreement, both parties appear to remain committed to reaching a final settlement. The procedural error will likely lead to a delay but not a derailment of the settlement process.

“This simply means that Ripple and the SEC will need to properly format their filing in accordance with Rule 60 and demonstrate the ‘exceptional circumstances’ that justify modifying the court’s final judgment,” explains Dmitry Petrov, professor of law at Moscow State Law University. “Given that both parties agree to the terms, this is likely a procedural formality, though it will require additional time.”

Analysts suggest that the parties will likely file an amended submission in the coming weeks, following the correct procedures and satisfying the requirements of Rule 60. If the Second Circuit grants the request to stay the appeals, it may clear the way for jurisdiction to return to Judge Torres and for the settlement to be properly considered.

Significance for the Crypto Industry

The SEC and Ripple’s push for settlement reflects a broader shift in the U.S. approach to cryptocurrency regulation following the 2024 presidential election. The Trump administration has appointed more crypto-friendly regulators, resulting in a notable softening of the SEC’s stance.

“We are witnessing a significant change in the regulatory climate in the United States,” notes Alexander Sokolov, director of the Institute of Crypto Economics. “Even despite the technical delay with this particular agreement, the overall trend is moving toward a more balanced and constructive approach to the crypto industry, which could potentially lead to clearer rules and reduced legal uncertainty.”

The final resolution of the Ripple case could establish important precedents for other companies facing similar charges and help define the boundaries of what constitutes a security in the context of digital assets. This is particularly important given that Judge Torres’s previous ruling already created a distinction between institutional and retail sales.

As the parties work to overcome procedural obstacles, the crypto industry will be watching developments closely, hoping for a swift resolution to one of the longest and most significant legal battles in its history.