Tag: XRP

From Ripple and XRP to Filecoin: The SEC is Simply Illogical

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By John Deaton. May 26, 2023. (Blockworks).

If the crypto industry hadn’t yet appreciated the scale of the danger posed by the SEC’s legal theory at the heart of its long-running lawsuit against Ripple and the XRP token, it seems to have finally hit home for many when news broke about Grayscale’s attempted SEC registration of its Filecoin Trust. 

When you consider the Grayscale news, the SEC’s recent claim that Algorand constitutes an unregistered security, and the Coinbase Wells notice, the SEC’s war on crypto becomes clear.

As amicus counsel for 75,000 plus XRP holders, I’ve spent more than two years warning anyone who would listen about the outrageous arguments being made by the SEC. 

The SEC’s central theory in the Ripple case is that the XRP token itself is a security. The allegations are not limited to transactions offered by Ripple or its executives. The SEC is arguing all sales of XRP, regardless of the seller or the circumstances surrounding the sale, constitute the transfer of securities. From the very first one in 2013, onward into perpetuity — including on the secondary markets between parties who have nothing to do with nor even knowledge of a company called Ripple.

The SEC based this on the allegation that the “very nature” of a digital asset is to be a security and nothing else, making XRP “the embodiment” of an investment contract with Ripple no matter who holds it, uses it or sells it. 

Read the full article here.

The SEC’s High-Stakes Vendetta Leaves the Country Worse Off

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By Jared Whitley. May 23, 2023. (Townhall).

Blockchain technology is the next generation of technical evolution born from American innovation – much like the first radios, computers, or the once quaintly named world wide web. The technology likely won’t replace the U.S. dollar but it will transfer a lot more power over financial transactions into the hands of individuals – which was the whole idea when it was invented many years ago after the financial crisis. 

Naturally, the big banks who finance the Democratic Party don’t like that, and the point-man in their war on crypto is Securities and Exchange Commission Chairperson Gary Gensler. 

Both tensions and blood pressure are on the rise as the crypto industry anticipates summary judgment in the SEC v. Ripple Labs lawsuit. There have been reports that a ruling in the high-stakes case could be settled any day. 

The SEC, in what’s become a pattern, slapped a lawsuit on the payments software company back in 2020, claiming they had been selling the XRP token to crypto exchanges without registering them as securities. Ripple counters that the XRP assets are commodities, and the XRP buyers are not investors in their company. The company’s software product uses XRP as a bridge currency for instantly settling cross-border payments without fees.

Read the full article here.

Ripple Wins Battle For ‘Hinman Documents’ in Bitter SEC Case

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By Sebastian Sinclair. May 17, 2023. (Blockworks).

Ripple has secured a small victory against the US Securities and Exchange Commission (SEC) — shutting down the agency’s motion to seal internal files known as the “Hinman Speech documents.”

Those documents consist of SEC drafts and emails relating to a speech given by William Hinman, former Director of the SEC’s Division of Corporation Finance, more than four years ago. 

Hinman’s speech reportedly indicated the agency did not consider ether a security at the time. Ripple lawyers have fought to learn more about how Hinman came to that conclusion, which could impact XRP’s own classification.

According to Tuesday’s filing, the SEC made an attempt to justify the need for confidentiality, contending their lack of relevance to the summary judgment motions and potential disclosure could significantly harm the agency’s interests.

Judge Analisa Torres disagreed in the filing, which triggered an 8% rally for XRP.

“Regardless of whether the court ultimately determines that the Hinman Speech Documents are admissible, or whether the court relies on the documents in ruling on the summary judgment motions, they are judicial documents subject to a strong presumption of public access because they are ‘relevant to the performance of the judicial function and useful in the judicial process.’”

Read the full article here.

SEC Crypto Litigation Ventures Into Dangerous Legal Territory

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By John Deaton. May 2, 2023. (Bloomberg Law).

US attorney John Deaton analyzes the impact of SEC v. Ripple and SEC v. LBRY on the agency’s enforcement around digital assets, where it pushes the boundaries of U.S. v. Howey, and how it redefines investment contracts and common enterprises.

The US Supreme Court issued the landmark SEC V. Howey decision in 1946, laying out a specific definition of what constitutes a security. Those justices couldn’t have guessed how complex digital commerce over encrypted lines of computer code would fit in almost a century later.

The Securities and Exchange Commission under Chairman Gary Gensler has its own idea of how cryptocurrencies should be regulated today, but bears little resemblance to that decision—and it’s straying into dangerous legal territory in court.

The Howey case involved orange groves sold by a Florida resort to tourists in a scheme where the investors earned passive income from the resort’s management and commercialization of the oranges. The so-called Howey test says a transaction is a security if it is an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others. All three prongs of the test must be met.

Hundreds of federal cases that followed found unregistered securities in the packaging and sales of whiskey, condos, chinchillas, oil and gas, and beavers. A scheme to sell any asset, including cryptocurrencies, could easily fit into this test. All modern securities law is built on it.

Ripple and XRP

But this isn’t what the SEC has been arguing for two years in the biggest unregistered securities enforcement action to date against a crypto company. The suit was filed against US software company Ripple Labs, which sells a digital payment solution for banks, and includes cryptocurrency XRP as a bridge asset to settle cross-border payments in seconds for almost no cost.

Since 2013, the company has also sold billions of XRP tokens it holds to various crypto exchanges who resold them on the secondary markets to millions of retail holders.

Over the last decade, the XRP ledger grew as a decentralized permissionless distributed ledger with a variety of uses by other companies and individuals. The XRP token eventually rose to having the third-highest market cap for any cryptocurrency in the world.

I am an XRP holder and trial lawyer, so I read the SEC’s complaint as soon as I heard about it. I expected to see the SEC pointing to a scheme of specific early sales by Ripple of XRP, which met the Howey test. That would’ve made sense. But I was shocked to read that the SEC was arguing that all sales of XRP have always been and would always be securities, because “the very nature” of the digital asset is to be a security and nothing else. The token itself is “the embodiment” of an investment contract in Ripple, they argue, even on the secondary markets with no involvement of the company, including mine.

This goes beyond anything the 1933 Securities Act and over 250 federal appellate and Supreme Court decisions about securities law ever imagined. The SEC’s argument is the equivalent of the oranges in Howey being “the embodiment” of the scheme to sell the groves. If that’s the case, how does a corner grocer register an orange with the SEC?

All US exchanges immediately suspended XRP trading in fear of SEC reprisal, locking up the tokens of innocent retail holders as the value plummeted by $15 billion. The collateral damage done to these holders that the SEC claimed to be defending was staggering.

I organized a class of over 75,000 retail XRP holders and gained amicus curiae status in the case. Our reasons are pretty logical. The vast majority attest they’d never heard of Ripple Labs when they acquired the token for their own purposes.

These lines of computer code they obtained can’t be an investment contract or a common enterprise with a company they’d never heard of, and nothing in the law—before or after Howey—supports that idea.

Judge Analisa Torres in the Southern District of New York is taking her time with a ruling in the Ripple case because she must understand the stakes, particularly on appeal. The questions to be decided go to the foundations of modern securities law, and what assets can and can’t be included in it. Torres also knows the current US Supreme Court has been knocking down regulators that overreach the powers Congress specifically granted them.

Similar Suits Follow

Other crypto companies from Coinbase to LBRY started facing similar SEC lawsuits. Gensler’s public statements on crypto grew sharper. The larger objectives became clear. He inherited the Ripple case from his predecessor, but he’s made its legal theory the centerpiece of an expansion of regulatory power in court, not through rulemaking or legislation. That has drawn Congress’ ire.

I’m all for clear rules and regulations to protect people. But the SEC is exploiting legal uncertainty about crypto to radically redefine what constitutes an investment contract and a common enterprise in the US. The legal and economic consequences could be enormous and that will only harm people.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

John Deaton is an American attorney acting as amicus counsel for retail digital asset holders in a number of high-profile federal SEC enforcement cases on crypto, most notably SEC v. Ripple (SDNY) and SEC v. LBRY (DNH).

Reproduced with permission. Published May 2, 2023. Copyright 2023 Bloomberg Industry Group 800-372-1033. For further use please visit https://www.bloombergindustry.com/copyright-and-usage-guidelines-copyright/  

SEC Commissioner Says Her Colleagues Performed a “Shorthand Analysis” of XRP

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Byy Lele Jima. February 9, 2023. (Crypto Basic).

In a recent tweet, XRP-Pro attorney John Deaton knocked the SEC for arguing that XRP represents both the common enterprise and the expectation of profit prongs of the Howey Test. Deaton expressed surprise that the SEC could reach such a conclusion despite not evaluating each transaction individually.

“The SEC doesn’t go transaction by transaction and argues that #XRP embodies or represents both the common enterprise and expectation of profits prongs of the Howey test,” said Deaton.

The founder of Crypto Law backed his comment by saying that even SEC Commissioner Hester Peirce (sometimes called Crypto Mom) admitted that her colleagues made a wrong call in evaluating XRP as a security.

Read the full article here.

SEC v. Ripple: Did The Government Fail To Prove Its Case?

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By Hassan Tyler. January 19, 2023. (ValueWalk).

The saga for what Forbes has called “ the cryptocurrency trial of the century” looks as if it is about to enter its closing stages. Final briefs on summary judgment were filed in November of last year by the U.S. Securities and Exchange Commission (SEC) and the payments software company Ripple Labs in SEC v. Ripple .

Nearly two years of arguments are now in the hands of Judge Analisa Torres of the Southern District of New York, who is expected to rule sometime in the first quarter of this year.

SEC v. Ripple

The issue revolves around how Ripple uses the XRP token and its decentralized ledger as a tool for its cross-border payments software that it sells to international banks and money transmitters. The company and two of its executives sold large amounts of the token to exchanges starting in 2013, which fed a substantial secondary market for the cryptocurrency and an ecosphere for the XRP Ledger for businesses and individuals without the involvement or permission of Ripple.

Read the full article here.

The FTX Scandal: Accountability and Regulatory Clarity Are What We Need Now

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By John E Deaton

I started CryptoLaw to provide everyday investors with a “clearinghouse of information, news and analysis on key U.S. legal and regulatory developments for digital asset holders”. After the massive fraud at FTX was exposed, something that unfolded right under the nose of the Securities and Exchange Commission (SEC), I am only more passionate about continuing this work for the digital asset holders.

It still seems that we don’t have anyone protecting us. Now more than ever we need to press Congress to hold bad actors and government agencies accountable for what they’ve done and what they failed to do.

Sam Bankman-Fried defrauded millions of customers and investors of billions of dollars while he was the toast of Washington. SEC Chairman Gary Gensler has been claiming “the rules are clear” on crypto and that his agency has the authority to regulate the whole space. He said FTX should have been registered, and that would have somehow prevented this from happening. But when lawmakers from his own political party ask him what compliance and registration actually means, they get no answers, only more talking points.

Gensler repeats over and over that for retail holders and investors, like those defrauded by Bankman-Fried, the solution is for exchanges to “come in and register” but the details end there. If Gensler is telling the truth that the “rules are clear”, then he failed miserably at enforcing them. His Enforcement Division has spent much of its resources suing Ripple and LBRY in long, non-fraud cases that failed to protect a single investor while the FTX fraud was happening right under its nose.

Through the “decentralized justice” of hundreds of digital asset holders investigating government documents, we learned that Gensler and the SEC met with Bankman-Fried at least three times. Good journalists and Congressional offices took that information and discovered that the subject of those meetings was a regulatory deal that would recognize FTX as a sanctioned crypto exchange. Gensler refuses to answer questions or release notes and documents from those meetings that will clarify what was discussed, or why the fraud was never detected.

Bankman-Fried is a fraud. He’s been arrested and will face prosecution and likely a long prison sentence. But that’s only part of what went wrong here. The SEC’s mission statement is “to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.”. In this instance, and in the crypto overall, Chairman Gensler and the SEC failed on every point.

Accountability and regulatory clarity are the two most important things that we need now. The bipartisan hearing of the House Financial Services Committee on December 13 was a positive step forward, where it seemed most of the committee members agreed that they have to step in and write the rules that Gensler has refused to produce. The also promised to investigate Gensler’s repeated misfires and distractions that do little or nothing to protect anyone. Those lawmakers need our support, collaboration and pressure to get it done.

Ripple, SEC make final bids for a quick win in XRP lawsuit

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By Jody Godoy. December 5, 2022. (Reuters).

Ripple and the U.S. Securities and Exchange Commission accused one another of stretching the law, as they argued for a ruling on whether the XRP, the world’s seventh-largest cryptocurrency, is a security.

Both sides urged U.S. District Judge Analisa Torres to rule in their favor without sending the case to trial in papers filed on Friday.

The final round of briefs seeking summary judgment brings the case closer to a ruling that could further define what digital assets are considered securities in the U.S.

The judge could grant either side a win without a trial, or decide to narrow the issues that go before a jury.

Ripple’s founders created XRP in 2012. The SEC sued the San Francisco-based company and its current and former chief executives in December 2020, alleging they have been conducting a $1.3 billion unregistered securities offering since the token’s creation.

Ripple argued in its brief that the SEC was seeking a ruling that XRP was an investment contract, but “without any contract, without any investor rights, and without any issuer obligations.”

Read the full article here.

Ripple gets support from Blockchain Association in XRP lawsuit against SEC

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By Timmy Shen. November 17, 2022. (Forkast)

Fast facts

The Blockchain Association filed its amicus brief on Tuesday, saying: “The SEC’s extremely broad interpretation of the securities laws would have devastating effects on the industry (and even outside the industry).”

The Crypto Council for Innovation (CCI), an alliance of industry leaders, also filed an amicus brief on Tuesday in support of Ripple.

“To date, the SEC has largely chosen enforcement over rulemaking as the way to regulate this evolving ecosystem,” CCI wrote in its filing.

Cryptocurrency-related organizations and firms – Veri DAO, Cryptillian Payment System, Reaper Financial and Paradigm Operations – this week also submitted their briefs that challenged the SEC.

In December 2020, the SEC filed a lawsuit against Ripple and its executives, alleging the sale of XRP constituted an offering of unregistered securities worth over US$1.38 billion.

An amicus brief is typically submitted by an individual or organization that is not a party to a case but intended to influence the court’s decision.

Read the full article here.

SEC Shouldn’t Win ‘Most Overbroad’ Ripple Suit, Court Told

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By Emilie Ruscoe. November 16, 2022. (Law360)

A group of investors in Ripple Labs Inc.’s signature digital assets XRP have argued the U.S. Securities and Exchange Commission’s allegations in its suit against the blockchain company “are quite possibly the most overbroad, far-reaching claims ever made in an SEC enforcement action,” asking a New York federal judge to deny the regulator a win in its suit.

In a Wednesday amicus brief, the group of six individual XRP holders told U.S. District Judge Analisa Torres she should deny the SEC’s September motion for summary judgment, telling her the SEC seeks to have jurisdiction over “an entire digital asset ecosystem” by asking for her to rule in its favor on its claim the sale of XRP constitutes offering unregistered securities.

Read the full article here.