Plaintiff Tetragon Financial Group Limited is a shareholder of Ripple Labs, Inc., a blockchain company that uses a cryptocurrency called XRP. Tetragon had a right under a Stockholders’ Agreement to require Ripple to redeem its shares if the SEC or another government agency “determine[s] on an official basis” that XRP is a security “on a current and going forward basis.” Here, Tetragon sought a declaration that the SEC’s decisions to file an enforcement action in federal District Court, and issue a Wells Notice, each triggered the redemption right.
Following expedited proceedings, the Court of Chancery disagreed. Reviewing dictionary definitions, it held that the SEC’s actions were not “determinations” because they lacked finality. The SEC’s decision to file a complaint in the District Court merely reflected the SEC’s view that XRP is a security; but a final determination could only come from the District Court. Additionally, the SEC’s issuance of a Wells Notice prior to filing the enforcement proceeding was even further removed from being a final determination. A Wells Notice is just the request of an SEC staff attorney to allow potential defendants to argue their position. Again, for there to be an ultimate “determination,” that process would have to result in an enforcement action, in which the District Court would have to rule for the SEC. Finally, the Court explained that its ruling did not undermine the terms of the parties’ agreement, which allowed for the SEC to make a final determination. The Court recognized that the SEC may make a final determination through an administrative proceeding or rulemaking, among other things. Because Tetragon’s redemption right had not matured, the Court granted summary judgment in Ripple’s favor.