The lawsuit between Ripple and the US Securities and Exchange Commission (SEC) is nearing its end. The result of this court can be important for the entire digital currency market, and that is why in this article we have reviewed the opinion of a lawyer about the result and consequences of this case.
According to CryptoPotito, with the United States Exchange Commission’s all-out attack on the digital currency industry this year, the case between Ripple and this government organization has become more important. People involved in the case, such as Brad Garlinghouse, CEO of Ripple, believe that the final court ruling could happen in the near future.
Now, in order to understand the importance of this case for the entire digital currency industry, we briefly review the story of the Stock Exchange Commission’s complaint against Ripple.
Summary of the story of the SEC complaint against Ripple
In December 2020, the US Securities and Exchange Commission charged Ripple and its two senior executives, Brad Garlinghouse as CEO and Chris Larsen as former CEO of the company, for allegedly selling $1.3 billion in unregistered securities in the form of “XRP” tokens, which It goes back to 2013, he complained.
At that time, this lawsuit caused a sharp drop in Ripple’s price, and many prominent exchanges removed XRP from their markets in order to prevent the US Securities and Exchange Commission from dealing with it. However, Ripple has not failed to deal with this case until today, and according to Garlinghouse, the group has spent 200 million dollars to defend against the claims of the Exchange Commission in court.
The Ripple team’s main point is that XRP is neither a security nor an investment contract, but a digital currency to facilitate cross-border payments, and therefore is not subject to US securities law.
The CEO of Ripple said at the end of May (May) that he expects the result of this case to be known within the next few weeks, which means that any final decision of the court may be announced now.
Which side is right?
The US Congress has not yet proposed a law to classify digital currencies; Both as securities and as goods. The two bodies responsible for supervision and legislation in the US financial sphere, namely the Exchange Commission and the Commodity Futures Trading Commission, also disagree on this issue, and as it seems, according to the Exchange Commission, any digital currency other than Bitcoin is considered a security. .
Gary Gensler, the chairman of the United States Exchange Commission, avoided answering the question of what digital currencies are securities and did not give a clear answer in a question and answer session held in the United States Congress late this April. Gensler usually refers doubts related to this discussion to the Howie test. Howie’s test is a very old standard from several decades ago that examines the conditions of a specific transaction in a set of investment contracts and securities, based on the US Securities Act of 1933.
For an asset to be accepted in the Howie test, four key points are considered:
1. be a financial investment
2. Investing in a joint venture
3. There is an expectation of profit
4. profit from the efforts of third parties
Leaders of the US cryptocurrency industry, such as Ripple, often challenge the effectiveness of the Howie test for cryptocurrencies. For example, the Coinbase exchange recently claimed that stablecoins such as BUSD, which the US Securities and Exchange Commission recently introduced as securities, are not considered investments because their value is fixed over time and the component of “expectation of profit” about them. It does not apply.
What do lawyers say about Ripple?
John Deaton, lawyer and founder of CryptoLaw.US, represents more than 75,000 XRP holders in Ripple and the Exchange Commission case. His opinion is completely against the opinion of the Exchange Commission and not only does not consider XRP as a security, but also says that Gary Gensler should be removed from the chairmanship of the US Exchange Commission for his wrong actions.
Sandy Seth, a patent attorney with 25 years of experience in the field, says XRP does not meet all of the requirements of the Hawi test to be recognized as an investment contract. Although he does not specialize in securities law, his analysis of the Ripple case has been praised by Dayton.
Seth said about the Stock Exchange and Ripple Commission case:
The most basic factor to recognize a security is that it represents a financial stake in a joint venture; While the Stock Exchange Commission has falsely tried to remove this requirement.
Seth’s comments are in line with Dayton’s comment that the success or failure of Ripple as a company will not necessarily affect the XRP market.
Seth also said he hopes the SEC is not fooled by its misinterpretation of the Howie test and realizes that none of Ripple’s XRP sales contracts are securities because they do not represent ownership of shares in a joint venture.
What is the story of Hinman’s emails?
Another of Ripple’s claims in the case is that cryptocurrency industry activists have received incorrect and contradictory guidance from the Exchange Commission in the past. For example, the company points to one of the speeches of William Hinman, a former official of the US Exchange Commission, in which he talked about the possibility of some digital currencies that were once considered commodities becoming securities.
In early June, the Stock Exchange Commission was required to release the group’s internal conversations about Hineman’s 2018 speech. The released emails showed that members of the SEC had sent Hinman several warnings, with the message that his comments could mislead people about what makes a security asset. Despite these warnings, however, Hineman published this speech.
While the documents could point to possible corruption at the Securities and Exchange Commission, Seth says they divert attention away from the main issue.
He explains about this:
If the court rules that neither XRP nor the Ripple contracts that led to the sale of this token are investment contracts, which should also rule, the issue of fair disclosure will no longer be an issue.
“Fair notification” refers to the rule that no one should be forced to guess the meaning of a law. The law should be clear enough that everyone can understand what is allowed and what is prohibited. In this case, Ripple has claimed that it did not know exactly whether the sale of Ripple means the offering of securities or not.
The consequences of the Ripple case for the digital currency market
Like many figures active in the digital currency industry, Seth also believes that the court’s ruling in favor of Ripple will make it clear that the US Securities and Exchange Commission does not have absolute authority when dealing with digital currencies.
This event can protect companies active in this field from the actions of the Stock Exchange Commission until clear laws are presented and approved by the US Congress. In addition, by that time, another organization such as the Commodity Futures Trading Commission may take over the responsibility of monitoring digital currencies.
The US Securities and Exchange Commission recently sued two exchanges, Binance and Coinbase. In both cases, it was mentioned that these exchanges host transactions of tokens that are considered securities in the eyes of this organization. Many of these tokens, such as Cardano and Solana, have been sold with conditions similar to XRP, and after this claim by the Exchange Commission, like XRP, they faced a price drop.
Seth himself is a digital currency investor who spent months researching the issue and reaching these conclusions after reading the SEC filings.
He says at the end:
The Exchange Commission has terrorized the digital currency industry with its fake actions. This organization has harmed digital currency investors, and worse, it already knew that it would harm investors by filing these lawsuits.
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