Ripple Almost Shut Down and Distributed XRP After SEC Lawsuit, CEO Reveals

Ripple Considers Shutting Down After SEC Lawsuit Puts Company at Risk

Ripple CEO Brad Garlinghouse revealed that the company considered shutting down after the United States Securities and Exchange Commission (SEC) filed a lawsuit against Ripple and named him and his co-founder Chris Larsen in 2020 for XRP sales. The decision became one of the most difficult moments of his leadership, with the company questioning whether continuing the legal fight was worth the financial and operational risks.

Garlinghouse said during a KU Hustle podcast interview at the University of Kansas School of Business, published July 8:

“We almost decided to close the company when the SEC sued us…The company owns many securities. XRP …We could have closed it and…just distributed the XRP to shareholders on a pro rata basis.

The SEC’s lawsuit centered on the regulator’s assertion that XRP the sales were of unregistered titles. Garlinghouse disputed this position, comparing crypto token closer to bitcoinwhich he described as a separate digital asset operating on an open network.

Ripple’s legal fight ends after SEC appeal withdrawn and final judgment

Garlinghouse said Ripple spent $150 million on legal fees during the four-year dispute with the SEC, while its U.S. business remained largely stagnant for about five years after the trial began. He said the case created prolonged uncertainty over Ripple’s ability to operate in the domestic market.

The legal battle began in 2020 when the SEC claimed that Ripple sold $1.3 billion worth of assets. XRP as an unregistered title. In 2023, U.S. District Judge Analisa Torres issued a mixed decision, finding that XRP sales on public exchanges did not constitute securities transactions, while sales to institutional investors were treated differently under securities law.

Ripple was subsequently ordered to pay a $125 million civil penalty and accept an injunction related to compliance with securities law. Ripple and the SEC filed appeals challenging different aspects of the decision before agreeing to reject these filings. The case officially concluded in August 2025 after appeals were withdrawn and legal proceedings ended.

The regulatory environment surrounding cryptocurrency also changed after the change in leadership of the SEC under Chairman Paul Atkins and the Trump administration. The agency has moved away from a more aggressive approach of regulation by enforcement towards deregulation, greater engagement with the crypto industry, and focusing on traditional fraud cases rather than broad corporate sanctions.

Garlinghouse said that before the SEC filed its complaint, he met with SEC officials four times between 2017 and 2019 to explain how Ripple used blockchain technology and XRP in its payments system. He said regulators did not indicate during these meetings that XRP could be considered a security.

Ripple continued operations after weigh-stop option

Ripple’s chief executive described how the company could have responded to the SEC lawsuit, describing a scenario in which Ripple could have withdrawn from the dispute by distributing its XRP holdings and dissolving the company.

“You think these are securities. Ripple no longer owns them. Ripple is gone now,” he said, describing a hypothetical scenario rather than an action taken by the company, describing how Ripple could have responded to the SEC.

He added that such a decision would have come at a high cost to employees and the future of the company, saying:

“Hundreds of people would have lost their jobs. I think it was a bad outcome, but in some ways it was the easy outcome.”

After deciding not to close its doors, Garlinghouse said the choice to continue operations was unclear at the time. “It was a difficult decision and, in retrospect, I’m obviously happy with it, but it wasn’t easy at the time,” he said. Ripple chose to continue operations after assessing the impact on employees and the business.