The Crypto Uprising The SEC Didn’t See Coming

by Roslyn Layton. August 31, 2021. (Forbes).

When the U.S. Securities and Exchange Commission (SEC) filed its bombshell lawsuit against cryptocurrency innovator Ripple Labs in December 2020, it didn’t expect blowback. But during the pre-trial phase, Ripple’s legal team has put the SEC itself on trial after years of conflicting and confusing guidance on the rules for cryptocurrencies. No one expected the tsunami of legal, political and social media action from retail cryptocurrency investors, outraged by the betrayal from an agency claiming to protect their interests. The meltdown of the SEC’s credibility with this $2 trillion global investor community exposes a costly SEC miscalculation.

Indeed, official Washington has been back-footed by the size, scale and diversity of the crypto investor class and the industry they support. Lampooned by mainstream media and the U.S. government for years, the crypto community has built a media ecosystem that connects millions of investors, consumers, developers and entrepreneurs across the globe. It’s fitting that the pioneers of the blockchain economy would apply consensus protocols to their communication. This decentralized social media apparatus has proven powerful — just ask Congress after the backlash of the infrastructure bill over a badly written crypto tax provision. When the Ripple lawsuit was filed, that ecosystem galvanized an independent battlefront unexpected by the SEC.

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The SEC’s Fair Notice Farce, Starring William Hinman

By Roslyn Layton. July 19, 2021. (Forbes)

Covering the U.S. Securities and Exchange Commission’s (SEC) ill-conceived enforcement action against Ripple Labs is never dull, and last week offered another development in the case. When the agency accused the San Francisco-based software company of seven years of unregistered securities trades by its distribution of the XRP digital currency, it unwittingly opened the door to replacing the SEC’s antiquated Howey Test for defining securities. Moreover, it appears that the judge agrees with the defense’s argument that the SEC failed to provide fair notice to Ripple (or any market participant) that XRP was, in the agency’s view, a security since 2013.

Throughout the pre-trial phase of the case, Ripple’s legal team has demonstrated that the SEC denied fair notice not just on XRP, but cryptocurrencies in general. When Ripple filed an intention to present a fair notice defense, the SEC launched a series of desperate filings to stop Ripple, knowing that if that defense is permitted, the trial case against Ripple will be dead on arrival.

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SEC v. Ripple Key Hearing Today: John Deaton Offers Line of Questioning

By Rick Steves. July 15, 2021. (Finance Feeds) Judge Sarah Netburn will hold a hearing today to discuss the SEC’s motion to quash the deposition of former SEC Division of Corporation Finance Director, William Hinman. The scheduled telephone call, which was deemed “bad for Ripple” by attorney Jeremy Hogan, is expected to clear the way for the deposition on July 19 following Ripple’s re-notice as the defendant grows impatient.

The SEC argues that Ripple and its co-founders are unable to demonstrate “exceptional circumstances” for the testimony of a high-ranking government official. John E. Deaton, the attorney who has previously filed a Motion to Intervene in the name of XRP holders, admitted that it is “a big deal to subpoena a former high-ranking official for a deposition in order to answer for his actions while in office”. But Hinman’s actions were clearly material for a precedent-setting case such as SEC v. Ripple, he stated, arguing in favor of the deposition. Commenting ahead of today’s hearing, Mr. Deaton offered a “quick, but not exhaustive, review of what XRP holders and crypto holders and investors, in general, deserve to know should William Hinman be permitted to testify under oath”.

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SEC Assault On Ripple Provokes Wider Debate

By Roslyn Layton. June 30, 2021. (Forbes)

The Securities and Exchange Commission’s (SEC) bombshell lawsuit against fintech startup Ripple Labs is now a cause célèbre in the cryptocurrency community, but its sweeping implications about regulatory overreach against innovation is provoking principled debates in some of the country’s most influential policy circles. The Federalist Society’s Regulatory Transparency Program (RTP), an organization dedicated to fostering discussion and understanding of regulation, featured experts in an event titled SEC v. Ripple Labs: Cryptocurrency and “Regulation by Enforcement” last week.

In December, the SEC sued Ripple and two of its top executives for seven years of distributions of the cryptocurrency XRP which the agency labeled as illegal unregistered securities trades. Ripple offers a global payments platform for some 2 million users worldwide for the XRP token and its fully decentralized ledger. The company ferociously disputes the allegations by making clear that the regulatory agency allowed billions of XRP tokens to circulate freely on global cryptocurrency exchanges for seven years without making such a determination, despite being asked in public and in private for that specific clarity for years. The SEC also alleges that XRP’s only utility is to be an investment contract in Ripple and that all XRP holders depend on Ripple’s actions to obtain a return on their holdings. The suit seeks to enjoin the registration of XRP as a security and preclude Ripple’s executives from participation in the market. 

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SEC v. Ripple Labs: Cryptocurrency and “Regulation by Enforcement”

Check out The Federalist Society’s Regulatory Transparency Project’s Deep Dive podcast featuring John Berlau, John Deaton, Carol Goforth, and Roslyn Layton on YouTube. The four, hosted by Curt Levey, discuss the ongoing lawsuit and its potential impacts.