Is there a bright spot in the case between Ripple and the SEC? Some estimates suggest the case will end in 2022
As you may know, the U.S. Securities and Exchange Commission (SEC) initially claimed that Ripple sales of the XRP token constitute an unregistered securities offering. It also claimed that Ripple leaders Brad Garlinghouse and Chris Larsen aided and abetted those sales. So far, the lawsuit has not been successful, but why is everyone so interested in it? Can Ripple’s SEC lawsuit have a lasting impact on crypto?
Ripple maintains that the SEC has not made its securities regulations clear
Amid the SEC crackdown, earlier this month, as AZCoin News reported, Ripple’s legal team countered the agency’s allegations by arguing that two of its Commissioners had expressed uncertainty about the agency’s allegations of securities regulation in cases against other startups.
The SEC responded to that argument by calling those statements irrelevant to its claim that Ripple sold unregistered securities. The regulator maintains that it is not required to prove that the individual defendants knew or recklessly disregarded the legal consequences of their actions.
Later, Ripple has answered by doubling down on its original argument. In a July 23 letter, Ripple’s legal team argued that there is a decided lack of clarity over securities status.
“The SEC has alleged nothing improper about selling XRP other than its claim that those sales required registration with the SEC as a security,” Ripple’s team says in the letter. It also says that the SEC must show that the individual defendants knew or recklessly disregarded XRP’s alleged classification as a security.
#XRPCommunity #SECGov v. #Ripple #XRP Individual Defendants respond to SEC’s letter regarding public statement by Commissioners Peirce and Roisman, describing SEC response as going “on to publicly rebuke these two Commissioners’ considered views” that there is no clarity. pic.twitter.com/sTVjbZpAHF
— James K. Filan 🇺🇸🇮🇪 (@FilanLaw) July 23, 2021
Ripple’s legal team also argued that other high-profile SEC cases – most notably those against Kik and Telegram – don’t support accusations of aiding and abetting, as those cases did not involve accusations against individual defendants.
But, according to SEC calculations, Kik and Telegram’s unregistered crypto services failed the Howey test. This means that the values of the tokens each had issued were to some extent tied to the fortunes and management decisions of Kik and Telegram, respectively and thus weren’t true commodities. And it ultimately decided Ripple and XRP were in the same boat.
And Ripple’s efforts after that
Ripple then has loudly begged to differ. In 2018, Ripple’s regulatory relations director Ryan Zagone testified to Britain’s Parliament, said, “XRP is open source, and our company did not create it, so that existed as an open-source technology. We created a company interested in modernizing payments and then began using that open-source tech to do so…We didn’t create XRP…We own a significant amount of XRP; it was gifted to us by some of the open-source developers that created it. But there’s not a direct connection between Ripple, the company, and XRP.”
But that’s a wild stretch based on Ripple Labs trying to distance itself from its earlier incarnations as NewCoin and OpenCoin, said Preston Byrne, an attorney at law firm Anderson Kill specializing in cryptocurrency, who is not directly involved in the case. “XRP tokens didn’t spring out of the ground like gnomes,” said Byrne. “They were created by Ripple’s predecessor entity OpenCoin.”
In fact, while control over XRP is, in fact, somewhat decentralized, it’s not nearly as decentralized as BTC and ETH. Ripple owns much of the software that remains essential to maintaining the smooth processing and validation of XRP transactions and the financial network software that makes the most use of it. In that sense, the company’s success as a software developer could be seen as spilling into XRP’s value, a key element of failing the Howey test.
Furthermore, as the company and executives own most of the cryptocurrency themselves, they are in a unique position to impact the price of XRP by deciding when to sell new, large, potentially market-moving chunks of tokens without any warning to outside XRP holders.
The SEC also pointed out that Ripple CEO Brad Garlinghouse and former CEO and co-founder Chris Larsen as defendants in the suit; the SEC noted that Garlinghouse has personally sold 321 million XRP to the public, and Larsen has sold 1.7 billion. But, Ripple disputes these claims in its response to the SEC suit.
In fact, XRP price lost three-quarters of its value over an 11-day period starting just before the suit was publicly announced, falling from $0.59 to $ 0.22. Speculative surges in the seven months have sent it as high as $1.8, but today it stands at $0.74.
XRP/USD 4-hour chart | Source: TradingView
There are mixed opinions about the case and the impact on crypto
Outside of the SEC, there seems to be a growing consensus that XRP and other major cryptocurrencies should be regulated as currencies, not securities. XRP is already treated entirely as a currency by regulators in several countries, including the U.K., Japan, and Switzerland, and is enlisted as a form of money by hundreds of banks, companies, and consumer apps.
In addition to the suit’s impact on XRP’s price, some 50 cryptocurrency exchanges delisted XRP or suspended trading in it. But now everything is better.
Some see the SEC suit as chilling to the entire cryptocurrency industry. If the Ripple lawsuit contributes to the perception that the U.S. government is unfriendly to cryptocurrency, much valuable business will go elsewhere. Furthermore, this would certainly add to the already intense concerns over China’s hopes to dominate the global market via its central bank’s digital Yuan.
It is impossible to predict what the outcome of the case will be. Ripple is currently fighting it out with the agency in the U.S. Court for the Southern District of New York. As AZCoin News reported, James Filan, a lawyer in the Ripple community, wrote that the case is not yet close to a conclusion.
2/7 The government is not giving up and based on everything I’ve read Ripple will not give in. I do think that the Hinman deposition went forward. I don’t think Ripple would forfeit that opportunity. Ripple said Hinman has “unique first-hand knowledge about the SEC’s
— James K. Filan 🇺🇸🇮🇪 (@FilanLaw) July 30, 2021
Some estimates suggest that the case will conclude in early 2022. Whatever the ultimate court decision or settlement, the outcome is certain to impact the cryptocurrency world. The case is already turning up the pressure on both the SEC and Congress to clarify the law and regulation governing cryptocurrency, particularly when a cryptocurrency is or isn’t a security.
Battered and bruised throughout July, XRP price has finally enjoyed a strong rally towards the end of the year. Its 22% weekly gain is the highest among the top 10 coins by market cap and still has room for more growth. Despite a correctional phase, XRP’s bulls maintained control, and an extended decline seemed unlikely. This barring bearish cues from the broader market.
- Lawyer James Filan Believes SEC Vs. Ripple Lawsuit Is A War And Reveals Reasons For A Settlement Is Unlikely
- Almost 240 Million XRP Has Been Wired In The Past Thirteen Hours At Price At $0.74
- Global XRP Trading Volume And Volatility Exploded In The Second Quarter, Up 98%, Despite Ongoing SEC Lawsuit