A Ripple lawyer predicts that the SEC will soon target crypto exchanges
An attorney representing Ripple in a lawsuit with the United States Securities and Exchange Commission (SEC) predicts that the regulator will soon target crypto exchanges.
Ripple lawyer predicts the SEC will target crypto exchanges ‘soon’
John Deaton, an advisor to Ripple (XRP), has been highly vocal on Twitter about the ongoing lawsuit between the SEC and Ripple Labs. As the lawsuit appears to be coming to a (hopefully) conclusion, the defendants in the case are trying to proceed with a summary judgment on whether XRP is a security and whether information protection fair reporting is possible.
However, the SEC has been very proactive in keeping the discovery alive, causing more delays and causing some of the harshest communications in a lawsuit of this magnitude.
Deaton’s tweet came shortly after the SEC proposed new rules that would require platforms to include the fair value of digital assets they hold for users on their balance sheets.
The SEC is making shit up as it goes. The war continues. I predicted an SEC lawsuit against one or more exchanges by the end of the summer. I still believe it. https://t.co/yqA3acfPmw
— John E Deaton (@JohnEDeaton1) April 1, 2022
Deaton claims this is the first step in the regulator’s move to file cases against these exchanges, and we could see cases this summer. The recent advisory issued by the commission appears to affect crypto exchanges, DeFi platforms, and custodian service providers in general. However, the advisory opinion did not provide the much-needed clarity that the community expected about it.
Instead, the proposed rules add to the already complex and ambiguous regulatory framework that protects the space. In the advisory, the SEC pointed to several risks associated with crypto asset protection and cited a 2020 report on stolen assets from crypto platforms in 2018.
However, the regulator also acknowledged that it has refused to provide regulatory clarity, despite several calls over the years. In January, SEC Chairman Gary Gensler announced that the regulator would examine the changes more closely in 2022.
Has the SEC gone beyond its scope?
While this adoption could be the first step in a move to create a regulatory framework, there are concerns that the watchdog will expand its mandate.
The recent hacks in the crypto industry that have informed these new regulatory guidelines align with Gensler’s statements, including by users purchasing crypto on Coinbase, who made unsecured loans to the company.
With the new guidelines, all digital assets owned by investors on a platform will be considered platform assets. This will primarily affect the balance sheets of companies and place them under the control of the SEC.
Last year, Coinbase reported assets and liabilities of $21.3 billion on its balance sheet, much lower than the $278 billion in digital assets it held. Under the SEC’s registration requirements, any company with assets over $50 million is immediately subject to the SEC’s control.
As a result, liquidity providers and automated market makers may have no choice but to register under the SEC if the digital asset is added to their balance sheets. There are still other proposals, such as including crypto market participants, especially in defining a Government Securities Dealer or Dealer.
Ultimately, they will have to register with the SEC and comply with federal securities laws and regulatory obligations.
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