In an interview with CNBC at the World Economic Forum in Davos, Switzerland yesterday, Ripple CEO Brad Garlinghouse said securities regulators that are “hostile” toward the cryptocurrency industry will not make IPOs an immediate priority in the United States. He said no.
“Trying to open up to a very hostile regulator that has to approve the S-1 doesn’t seem like a lot of fun to me,” Garlinghouse said. “Coinbase apparently received S-1 approval, and now the Securities and Exchange Commission is suing Coinbase for doing the work described in the S-1.” The S-1 Prospectus is a form filed with the SEC prior to a potential IPO that provides a description of a company’s business operations and finances.
Garlinghouse pointed to a hearing scheduled for today in federal court in Coinbase’s ongoing case on the matter, which he said demonstrates Ripple’s stance of no further hostility.
Ripple’s CEO previously said the company would consider a public listing after its lawsuit with the SEC, which began in 2020, is over. He also confirmed yesterday that the company has been exploring markets outside the US for an IPO, but those plans are currently on hold.
Ripple awaits clear rules of the road
“We’ve looked at other jurisdictions that have clear rules, but frankly a lot of them go public because they need to raise capital,” Garlinghouse said. “Ripple is not in a position where it really needs to raise capital, so it is not a short-term priority. “We are certainly keeping that option open and will evaluate it over time and again when there are new regulators at the U.S. SEC.”
Garlinghouse also referred to current SEC Chairman Gary Gensler as a “political liability,” adding that a new chairman would be elected at some point and that would be “a good thing for the American people.”
But Garlinghouse did not see a potential future IPO as an outlet for investors. “I don’t see an IPO as an exit. “I see the IPO as a step in the journey,” he said. “Shareholder liquidity is important to me. We have investors who first invested in Ripple in 2012, so they have been involved in this transaction for 11 and a half years.”
Garlinghouse added that Ripple has been cash flow positive over the past few years, allowing it to invest in company operations and external acquisitions. Last week, Ripple began a $285 million share buyback that valued the company at $11 billion. “So we want to provide liquidity. That’s one of the reasons why we made this open offer and have now repurchased over $1 billion worth of stock,” Garlinghouse said Tuesday.
Last July, a federal district court judge denied summary judgment on XRP’s unregistered security status, sending the ongoing lawsuit between the SEC and Ripple to trial.
Judge Analisa Torres ruled: XRP
-1.31%
Although they are not securities in the secondary market, they become securities when sold as part of an investment contract to an institutional investor. Torres deemed the “programmatic” sales of Ripple, which the company used to automatically sell XRP on exchanges, as not constituting securities products because the buyers “had not invested in Ripple.”
Last October, Ripple celebrated the dismissal of all charges against its executives as part of ongoing litigation. Since then, efforts have been made to advance into Europe and Africa.
Coinbase vs. SEC
The SEC also filed a lawsuit against Coinbase in June of last year, alleging that Coinbase violated national securities laws by selling cryptocurrency tokens that it claimed were unregistered securities and failing to register a staking-as-a-service program. Coinbase argues that the agency effectively approved its core business by listing the company and is out of bounds due to a lack of congressional authority.
There are four outcomes from today’s federal court hearing. according to To cryptocurrency lawyer James A. Murphy. An outright victory for the SEC, in which a judge denied Coinbase’s motion, would be a “low bar,” Murphy said. This is because the SEC only has to show that their claims are valid. Coinbase has the potential to win outright. The judge granted Coinbase’s motion with prejudice. That means the SEC will have to appeal to the higher court to continue the case, he said.
Coinbase may secure a narrower victory if the judge approves the application for the tokens but rejects the staking service. Murphy said the unexpected end result was that the judge would grant Coinbase’s application but allow the SEC to fix certain deficiencies.
If Coinbase’s motion is denied in whole or in part, Murphy estimated the case would move into the discovery phase for about a year before a motion for summary judgment would be filed. Murphy added that he does not expect a ruling in the case at this time.
The SEC did not immediately respond to The Block’s request for comment.
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