By John Deaton. July 17, 2023. (Bloomberg Law).
The SEC should take a federal judge’s rejection of its claim that all XRP sales are unregistered securities transactions as evidence it needs to change its regulatory approach to cryptocurrencies, says attorney John Deaton.
US District Judge Analisa Torres of the Southern District of New York issued a landmark ruling in SEC v. Ripple Labs Inc. on July 13, delivering a critical and hard-fought legal win to digital asset holders and crypto developers in the US. On the most important legal questions at stake, it was a total victory for them—and a devastating blow to the SEC’s ambition to bring an entire asset class under its thumb.
The SEC had alleged that all sales of Ripple’s XRP cryptocurrency are unregistered securities transactions in violation of Section 5 of the Securities Act. The regulator based this on a grossly overbroad legal theory that anyone who buys XRP in the world, by whatever means, is investing in the company Ripple.
“The XRP traded, even in the secondary market, is the embodiment of those facts, circumstances, promises, and expectations and today represents that investment contract,” the SEC told the court, in a breathtaking grab at regulatory turf over crypto via lawsuits rather than through rulemaking or legislation.
In the end, Judge Analisa Torres rejected the SEC’s theory, citing the generally accepted understanding of securities law established in the 1946 Howey decision, which defined a security as an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”