SEC loses a battle to win the war? Ripple dissociates from pumping XRP
April 18, 2021. Summarized by summa-bot.
Compression ratio: 36.7%. 3 min read.
While the defendants may have gained an edge in pre-trial rulings in SEC v. Ripple Labs, are Ripple’s legal troubles now over?
“The SEC Is Now On Trial – And Knows It,” sounded Forbes. But the lawsuit continues — indeed, it is being closely watched and has the potential to set legal precedents in a number of areas, Daniel Payne, partner in the fintech and blockchain practice at law firm Murphy & McGonigle, told Cointelegraph, including: “The application of the statute of limitations to token sales; the extraterritorial reach of the securities laws to token sales on worldwide blockchains; the application of the securities laws to digital assets that FinCEN has regulated as a virtual currency [e. g. , BTC]; and whether courts will use Bitcoin and Ether as models of non-security digital assets in their legal analysis. ”Therefore, while the defendants may have gained an edge in pre-trial rulings in SEC v.
Ripple Labs that “the SEC’s case rests on the proposition that XRP is a security — if it is not, the SEC lacks jurisdiction,” while Payne told Cointelegraph: “There are a handful of district court rulings that specific digital assets are securities: Telegram, Kik, ATBCoin, etc. ” Those cases have provided important precedents that the SEC relies on now to police new token issuances that it believes are securities offerings.
But the SEC is alleging that XRP was and remains a security. ”John Wagster, an attorney at Frost Brown Todd, informed Cointelegraph that like almost every SEC action in the cryptocurrency space, the claims against Ripple “will be analyzed by market participants looking for a pathway to compliant token offerings,” adding: “A healthy market needs regulatory consistency, and the most meaningful outcome of the Ripple enforcement action would be one that provides a clear path forward for future issuances. ” Yuliya Guseva, professor of law at Rutgers Law School, told Cointelegraph that “the Ripple case is exceptionally important. ” Even though it resembles the Kik and Telegram cases, the facts in SEC v.
In the weekend following the pre-trial rulings, XRP added over 40%, standing at around $1. 3 on April 18, while almost reaching the $2 mark on April 14. Wagster told Cointelegraph that the increase in XRP’s market price over the past year has more to do with bullishness in crypto markets generally rather than anything specific to XRP, while Chase opined: “Maybe what we’re seeing is the free market in operation. ” The SEC’s lawsuit “is just another data point to be taken into account” in an evaluation of XRP; investors could even be handicapping an eventual settlement with the agency. There may be another interpretation: Maybe the SEC’s decisions just don’t matter that much anymore when it comes to globally traded cryptocurrencies.
Ripple has disputed the SEC’s allegations, arguing that XRP is a ‘fully functioning currency that offers a better alternative to Bitcoin. ’” Goforth further explained: “If the cryptoasset is truly decentralized so that there is no ‘other’ upon whom purchasers are relying, the Howey Test is not met. ” That is, the coin or token would not be considered a security, as happened with Bitcoin (BTC) and Ether (ETH).
“In the case of an asset like XRP, where the creator/issuer owns the bulk of the asset, controls its distribution, and is primarily responsible for its utility and potential profitability, it is easy to see how purchasers could be relying on the creator/issuer. ”Typically, SEC enforcement actions target issuers who are engaging in obviously fraudulent or corrupt behavior or target a specific activity they are hoping to dissuade, noted Wagster, adding: “The action against Ripple appears to target the promotional activity Ripple undertook when selling its tokens. ”“Ripple does not want to face the regulatory burdens of registering XRP as a security when Bitcoin and Ether appear to have escaped that fate,” said Payne, adding: “The question of how similar XRP is to Bitcoin and Ether today — as opposed to when they were first created — and whether the court even views that comparison as the right one could make or break this case. ”Meanwhile, even if the court decides that XRP is unlike Bitcoin and Ether — and has to be registered in the U. S. as a security — “that does not necessarily make the XRP token worthless,” suggested Goforth.