In July 2023, the Securities and Exchange Commission (SEC) looked poised to conquer the cryptocurrency space in the United States, closing in on a crucial judicial endorsement of its legal theory that digital assets themselves are investment contracts and offers and sales of cryptocurrencies are securities. Multi-billion-dollar enforcement actions based on this legal interpretation of the so-called Howey test had been filed by the Commission in federal courts against the biggest players in the industry — Coinbase, Kraken, Binance. Kraken had already settled one case with the SEC, and Coinbase and Binance were gearing up to fight theirs.
But Ripple had been on the front lines of this legal battle longer than anyone. In December 2020, the SEC sued the payments company and its two senior executives, arguing that several years of sales of the XRP digital token were unregistered securities. The Ripple case was the first full-scale attempt by the SEC to bring digital assets under its authority. A verdict was about to be issued by Judge Analisa Torres in the U.S. District Court for the Southern District of New York.
Stuart Alderoty, Ripple’s chief legal officer since 2019, knew that the stakes were high and would have far-reaching implications not just for Ripple, but the industry as a whole.
“The SEC provided no clear regulatory guidance before the lawsuit,” Alderoty told National Law Review. “The agencies were regulating by enforcement – meaning that legal expectations were clarified via cases brought by the agencies rather than establishing clear guidelines and rules.”
Alderoty’s strategy was to zero in on the heart of the SEC’s legal theory – the Howey test, a legal doctrine established in the 1946 Supreme Court decision in SEC v. W.J. Howey Co. (328 U.S. 293) that established the definition of a security under the 1933 Securities Act. Howey found that an investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
Over three and a half contentious years fought out in Torres’ courtroom, the SEC went as far as arguing that since the XRP token itself was a security, all sales of XRP, including on public exchanges, were unregistered securities.
Alderoty always believed the SEC was wrong.
“We argued that XRP did not meet the requirements of a security under the Howey test, since XRP is not primarily intended for investment but for cross-border payments, which distinguishes it from traditional securities,” Alderoty said.
Alderoty’s defense strategy attracted an unusually large number of amici curiae briefs from crypto law experts and even industry rivals, expounding on his assault on the idea that a digital asset itself could be “the embodiment” of a security and, therefore, provide the SEC with an almost unlimited legal berth to regulate every sale, even on secondary markets.
It was a winning strategy, and the impact was celebrated across the crypto ecosystem. On July 13, 2023, Torres ruled that “XRP, as a digital token, is not in and of itself a ‘contract, transaction[,] or scheme’ that embodies the Howey requirements of an investment contract.”
“It was a watershed moment,” Alderoty said, “to find as a matter of law, a token – in this case, XRP – in and of itself, is not a security.”
Alex Drylewski, a columnist for Reuters Legal News, called it a “groundbreaking decision” which “demonstrates that the Howey test is ill-fitted to secondary market transactions between anonymous buyers and sellers” like those on crypto exchanges.
On the day of the decision, Alderoty posted on social media that it affirmed “so much of what this industry is fighting for, and shows that the SEC does not have unbounded jurisdiction over crypto.”
Alderoty started his career as a litigator and trial lawyer at a global law firm, then spent years on the executive leadership teams of some of the largest financial institutions. He was hired by Ripple in 2019 to lead legal, regulatory, and compliance efforts.
“For many years, Ripple had consistently tried to engage in a constructive way with the regulators and proactively requested clarity on the issues that were later raised in the SEC lawsuit against us,” he said. “The regulatory environment felt really hostile at that time.”
“We know what bad looks like, but we’re left to guess what good looks like. And that’s just not healthy,” Alderoty said just weeks before the Ripple lawsuit was filed. The SEC had first noticed cryptocurrencies in response to fraudulent initial coin offerings, he said, and had “not been able to get past that and recognize that this is a real technology that is transformational.”
One year into the job and days before Christmas, Alderoty was confronted with a $1.3 billion enforcement action targeting his company and CEO Brad Garlinghouse and Board Chairman Chris Larsen. The SEC was seeking injunctive relief, disgorgement with prejudgment interest, and civil penalties. It led to a long-running legal battle that Alderoty said cost the company over $150 million in legal expenses, but the fight was worth it, as it was the first sign of the regulatory winds shifting for the whole crypto space.
“Judge Torres’s ruling was a win for regulation by rulemaking, which is the approach the industry has been advocating for since before this case began,” he told National Law Review.
Ripple and Alderoty’s legal victory helped catalyze an industry inundated with attacks from regulators and lawmakers alike. Lacking clear rules of the road, the cryptocurrency industry turned its sights on the 2024 election cycle through the Fairshake PAC, raising over $250 million to support candidates “committed to securing the U.S. as the home to innovators building the next generation of the internet,” with Ripple as one of its largest donors.
“Our real motivation was to have our voice heard – we wanted to work with an administration that would be open to creating clarity through rulemaking, which encourages innovation and integrity in the market. The choice to donate to Fairshake was very impactful because we now have a very pro-innovation administration,” Alderoty said.
With a new Congress and administration more friendly to cryptocurrency – due in large part to Fairshake’s success – firms like Ripple are now looking to Congress for clarity.
Alderoty outlined his hopes of what this may look like: “What we think is required is called market structure legislation. Right now, there are some legacy systems that work for traditional finance that don’t really work with crypto because of the nature and structure of the technology.”
“Any legal framework for crypto would need to be something that one, protects consumers; two, protects market integrity; three, keeps bad actors out of the industry; and four, respects innovation,” he said.
The road to regulatory clarity seems to be in better view today, and Ripple’s own legal battle with the SEC is almost finished. At the end of March, Ripple CEO Brad Garlinghouse announced the company had reached a settlement with the Commission.
Outlining the terms, Alderoty said, “[the] SEC will retain $50 million of the previously imposed $125 million fine. The agency will also request that the court lift the standard injunction currently in place. I expect that the Commission will formally vote soon.”
After this string of victories, Alderoty hasn’t rested on his laurels. In March, he turned his attention to leading up the National Cryptocurrency Association (NCA), where he serves as President.
He explained the need for the NCA at such a critical time for the technology: “First, it’s important to understand what the NCA isn’t. The NCA isn’t a PAC, a lobbying group, or a trade group. It started a year ago to fight the negative narrative about crypto.”
“The NCA exists to amplify the voices of Americans who use crypto and provides a one-stop shop for learning about crypto products and services,” he said. “Our belief is that as trust in the industry grows, crypto use will become mainstream with utility for everyday Americans.”
When Stu Alderoty secured his victory in 2023, it was a watershed legal moment for crypto technology and a turning point that helped launch crypto’s political rise in 2024, and its mainstream acceptance in 2025. This moment transformed the legal landscape and marked a new era of legitimacy and influence for the crypto industry. The NCA marks a new chapter for Alderoty, though the book is far from finished.
All views and opinions expressed in this article are those of the author and not necessarily those of The National Law Review or the Association for Women in Cryptocurrency.
