Written by Richard Wee and Sai Ganesh
Summary of the case
The ongoing SEC v Ripple lawsuit in the US Southern District Court of New York might determine how cryptocurrencies are regulated in the future and whether they are considered securities or commodities. According to allegations made by the U.S. Securities and Exchange Commission (“SEC”) in 2020, Ripple, the blockchain developer and creator of the XRP cryptocurrency token, raised more than $1 billion in 2013 by selling XRP to investors in an unregistered security offering. XRP shouldn’t be considered as a security, according to Ripple, who bases this claim on previous remarks made by an SEC director. The SEC v Ripple case rocked the cryptocurrency industry at a time when blockchain initiatives had little in the way of regulatory oversight.
Although there were worries about potential regulatory action in the future, this was the most prominent instance of a securities regulator focusing on an Initial Coin Offering (“ICO”). Hence, if Ripple loses the case, it would pave the way for similar legal measures against other cryptocurrency ventures, which would probably result in greater regulation of the sector. While the SEC contends that the ICO for Ripple and thus, subsequent ICOs represent the sale of a security that needs to be registered. The SEC would effectively become the primary crypto regulator if the SEC triumphs in court.
The Justices continue to predict the likely outcome as the summary judgement deadline in the high-stakes legal dispute between Ripple and the Securities and Exchange Commission (SEC) approaches. Although the final decision is still circulating, useful information about potential remedies can be gleaned from other current court battles involving businesses that are comparable to these.
However, on May 19, Stuart Alderoty, the chief legal officer of Ripple, highlighted a significant breakthrough that may change how securities laws are interpreted in the modern day.
While on the other hand, the primary legal argument of Ripple, is that an ‘investment contract’, as that term is used in Howey’s test, calls for a contractual arrangement for an investment that confers post-sale rights on the buyer and imposes equivalent obligations on the seller.
Albeit, Ripple intends to prove that XRP does not fall within the SEC’s jurisdiction as a security by highlighting the impact of common law on the interpretation of the statute. Alderoty had criticised the SEC’s stance on the ‘common enterprise’ argument.
The Supreme Court rejected the SEC’s claim that the existence of ‘common enterprise’ is unnecessary. Alderoty emphasised that the SEC’s evaluation of XRP has historically been inaccurate and remains so today. Such admissions in this current globalisation for the legal standards must change to reflect the modern world might have profound ramifications for Ripple and the larger cryptocurrency market.
The Hinman documents’ unsealing, which shed light on how the regulator initially classified cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) as securities, has also been a major source of debate throughout the court proceedings. Hence, when the SEC’s attempt to seal the records was rejected, Ripple won a major win. Therefore, in accordance with the court’s earlier order, the records are scheduled to be made public on June 6.
However, in the most recent development, as per defence attorney James Filan, whom announced in a tweet on May 19 that both sides had submitted a joint letter asking for an extension of one week. They ask for an extension until June 13, 2023, in order to submit their cross-motions for summary judgement, their exhibits, including the Hinman documents, and the public and undeleted copies of those motions.
Since December 2020, Ripple has been involved in a legal dispute with the SEC. According to the SEC’s complaint, Ripple sold XRP tokens in a $1.3 billion unregistered securities offering.In the interim, XRP keeps trading with the wider market. At the time of publication, XRP had weekly gains of roughly 9% and a value of $0.47 (as per Finbold).
Published on 15 August 2023