Ripple Labs came within a hair's breadth of shutting down entirely after the U.S. Securities and Exchange Commission filed its landmark lawsuit, according to the company's chief technology officer David Schwartz. The legal advice at the time was stark: the company was 'unsavable' and executives should cut a deal to save themselves.
The Brink of Total Shutdown
CEO Brad Garlinghouse recently told the University of Kansas School of Business that the SEC lawsuit nearly marked the end of Ripple. "We almost decided to shut down the company when the SEC sued us," Garlinghouse said, adding that the government's seemingly infinite power and resources made the fight appear hopeless. He and co-founder Chris Larsen seriously considered dissolving the firm overnight, distributing XRP to shareholders on a pro rata basis.
Garlinghouse admitted that while shutting down would have been a bad outcome, it was the easier path. The company's survival was far from obvious at the time. Schwartz later clarified that the bleak outlook stemmed directly from the legal counsel Ripple's top brass received: lawyers told them the company was done for and they should settle to protect themselves personally.
Personal Charges as a Tactic
Schwartz also suggested that the SEC's decision to name Garlinghouse and Larsen personally in the suit was a calculated move. "I think the SEC named Brad and Chris personally because that's the expected response to such a suit," he said, implying the agency aimed to break the leadership's resolve and force a rapid settlement. The strategy nearly worked, as the executives weighed capitulation.
Suspecting Crypto Rival Influence
The near-closure revelations have revived speculation about the SEC's aggressive enforcement tactics. Schwartz added fuel to the so-called 'ETHGate' conspiracy by pointing a finger at competing crypto projects. "I don't have good evidence for this, but I think it's more likely that competing crypto projects had more to do with it," he said, though he acknowledged the claim is purely speculative. "I'm not really sure why I think that, so feel free to disagree." When pressed specifically about Ethereum's role, Schwartz reiterated his lack of hard evidence but said he feels the conspiracy is "more real than fake."