Tag: XRP

Government’s Attack Vectors

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By Kristi Warner

The government’s approach to remedies and bitcoin mining are similar examples of agencies utilizing tools at their disposal to attack the crypto industry. 

Remedies

In July 2023, the SEC lost in the Ripple case on the main legal theories – Judge Torres ruled that secondary market sales were not sales of unregistered securities and XRP itself is not a security. 

Individual XRP holders got their resolution.

Now the case is really at a point where institutional sales and remedies are the focus. The SEC utilizes remedies and reliefs in many cases, and the type of remedies asked for typically varies based on the type of litigation. 

In the Ripple case, the SEC after losing on the legal theories, and vindicating the two executives still wants the company to pay a lot of money in remedies so they can hold the company “accountable”, and right any wrongdoing. 

The irony is that the people the SEC are supposed to be protecting (you and me) were not harmed by any of Ripple’s actions. Instead, it was the SEC’s action that resulted in restricted access, delistings and actual harm to us. 

That is because the SEC has weaponized its authority in an attempt to destroy innovation. Thankfully what we have been seeing in a lot of the cases are ourts keeping the SEC in check. 

The American Government was designed to be a system with checks and balances between the three branches. 

So while I agree we can look beyond the SEC v. Ripple case, I still think lawsuits in general are important to pay attention to as they are key to keeping the government agencies accountable and allow the industry to fight back. 

Bitcoin Mining

Another recent example of this is the RIOT Platforms and Texas Blockchain Council suit against the Biden Administration in a Texas court. 

The backstory is the U.S. Dept. of Energy had decided to conduct an “emergency” survey of the energy use by crypto miners based on its own unwarranted assertion that mining is a threat to the power grid. Allegedly the agency threatened companies with criminal fines and civil penalties if they did not answer the survey. The survey was requested without proper procedure established by law including public notice and comment requirements.

Once again we’re faced with a government agency trying to sidestep the law and bully crypto companies into submission by misusing tools at their disposal.

Solution

How can we combat that? 

In today’s world one solution to maintain the system of checks and balances is heading to Court. That’s what RIOT and Texas Blockchain did and while it was not the exact relief they were seeking, the lawsuit forced the government to halt their survey and destroy the sensitive and confidential information they had already acquired through the survey. 

Same with Ripple – they exposed government overreach by fighting back against the SEC in court. 

These are both huge blows to the government’s war on crypto because when these agencies are committing government overreach, the courts are putting that power in check and forcing them to follow the law. 

Watch the full livecast here: https://www.youtube.com/watch?v=eQxoBShe2CI&t=2s

Hinman Investigation: The Chance for the SEC to Get Something Right

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By John E. Deaton.

It didn’t just take a village. It took an army of activists, lawyers and everyday citizens to demand, insist and even sue the Securities and Exchange Commission to be transparent. From the moment William Hinman got on that stage in San Francisco on June 14, 2018, to declare that Ethereum’s native token, Ether, is not a security, something just didn’t seem right.

Indeed, that speech didn’t appear on Hinman’s official SEC calendar. The SEC has also forcefully refused under several chairman – including current Chairman Gary Gensler – to ever prejudge the status of a digital token with one very glaring exception: Hinman’s speech on Ether.

After six years, many lawsuits and tens of thousands of messages flooding into Washington, we learned today that the SEC Office of the Inspector General (OIG) is “in the final stages” of an investigation into the clear appearance of impropriety and conflicts of interest around Hinman’s speech and his many actions as SEC Director of Corporation Finance. My further understanding is that the investigation will delve into how the SEC ethics staff handled Hinman’s documented actions, or failed to.

It started with hundreds of internet sleuths working together in what I call decentralized justice. We discovered quickly that Hinman’s annual financial disclosures at the SEC showed he was receiving millions of dollars in payments from his old law firm, Simpson Thacher. We also learned that Simpson Thacher was a member of the Enterprise Ethereum Alliance, a group with the sole purpose of promoting Ethereum. Dozens of videos were located that had Hinman and other SEC officials, as well as key investors and stakeholders in Ethereum, saying in their own words what was happening in front of the cameras and behind the scenes around what Hinman called “the Ether speech”. I put them all together in a Video Library on the CryptoLaw website, and the evidence of possible conflicts of interest took shape.

At the same time, the excellent legal team defending Ripple, Brad Garlinghouse and Chris Larsen against the SEC’s lawsuit on the XRP digital token were locked in a long discovery fight over getting the internal emails and drafts of Hinman’s speech. That took years because the SEC fought so hard to hide the Hinman documents, defying so many court orders to produce them, that Magistrate Judge Sarah Netburn called them out for their lack of “faithful allegiance to the law.” As amicus counsel for 75,000 XRP holders in that case, I couldn’t agree more with Judge Netburn’s conclusion.

In August 2021, the government watchdog organization Empower Oversight jumped into the fight, with Freedom of Information Act requests and lawsuits when the SEC refused to comply. It took them years to force the SEC to produce the emails that proved how Hinman fought to receive million in payments from Simpson Thacher. They showed he was warned repeatedly he had a “criminal financial conflict” if he ever had any contact with that law firm, and he ignored them.

The Hinman emails obtained by Empower Oversight show he met over and over with Simpson Thacher, including with the head of their China office – Chris Lin – when his client had a pending IPO application before his division. The emails also showed direct contact between Joseph Lubin, one of the highest profile third party promoters of Ether, and Hinman before the 2018 speech.

In May 2022, Empower Oversight sent a referral of evidence about these conflicts to the SEC OIG. For almost two years, the group has been requesting internal communications about that referral and has been locked in litigation with the SEC to get compliance with those requests. That’s why today’s news confirming the OIG investigation is so important, and such a vindication for the thousands of people who have worked so hard to make this government agency transparent and compliant with the law.

I will not prejudge the SEC OIG’s investigation, nor should anyone else. They have pledged to give a redacted version of their final report to Empower Oversight, which means it will be made public for us to review ourselves.

But one thing is very clear. We must have our ethics rules followed by public officials like Hinman. When they are not followed, the law must be enforced. America is greatest when we have a level playing field and we allow the best technologies and innovations to compete fairly. And we must always stand up against gross government overreach.

This is the chance for the SEC to get something right for once. I hope the OIG issues a complete, fair and well-reasoned report which shows the kind of faithful allegiance to the law that the SEC Enforcement Division and Division of Corporation Finance have clearly failed to show to date.

Free XRP ‘Airdrop’ Advertised On X And YouTube Actually A Scam

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By Matt Novak. (Forbes). January 2, 2024.

Have you been seeing ads for an “airdrop” of the cryptocurrency XRP on platforms like YouTube and X over the past couple of months? They feature Ripple CEO Brad Garlinghouse explaining how people can receive XRP for free if they just send a particular crypto wallet some XRP first. But it’s all a scam using artificial intelligence to make it look like Garlinghouse is saying things he never actually said.

I first noticed the scam ads on YouTube back in November, which is unusual because the social media platform has a number of safeguards in place to protect against obvious scams. But recently I’ve been seeing the ad so much on X, formerly known as Twitter, that it’s seemingly taking up half of the ads in my feed.

Read more here: Forbes

A Sound Template for Crypto Regulation

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By J.W. Verret. (DC Journal). December 11, 2023.

The last few months have seen a seismic shift in the crypto industry, putting the Securities and Exchange Commission squarely in the hot seat. The agency seems to have taken the wrong regulatory approach at every possible juncture: cozying up to fraudster Sam Bankman-Fried while excoriating crypto innovators and companies that seek to do business lawfully in the United States.

We’ve seen in the cases of SEC v. LBRY, SEC v. Ripple, Grayscale v. SEC and others that the commission’s overriding desire to protect entrenched political interests instead of consumers facilitated the demise of well-intentioned companies, the loss of hundreds of millions of dollars in consumers’ wealth and massive fraud going unchecked, like at FTX.

The courts have attempted to right the ship, pushing back on the SEC’s “arbitrary and capricious” rejection of its Bitcoin ETF and issuing a legally sound victory for Ripple on core legal questions in the SEC’s lawsuit against the payments company. In fact, the Ripple decision from Judge Analisa Torres of the Southern District of New York could be considered a roadmap for other crypto companies because she carefully laid out how and why the facts and circumstances of cryptocurrency offers and sales matter under existing securities law.

At its heart, this “Ripple roadmap” recognizes the nuances of how unique digital assets and their trading can be while still applying existing securities law dating back to the 1946 U.S. v. Howey decision, where the Supreme Court defined what makes a security.

Read the full piece here: D.C. Journal

Brad Garlinghouse Is 2023’s Comeback King With XRP’s Win Over SEC

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By Jeff Wilser. (CoinDesk) December 5, 2023.

On a rainy Friday night in September, a crowd of thousands filed into Hammerstein Ballroom, the legendary New York concert venue. It’s a place that has hosted the Grateful Dead, Jane’s Addiction and everyone from David Bowie to Taylor Swift.

But the crowd wasn’t here for Taylor Swift. They were here for something far more important. They came for “The Proper Party.” The party’s raison d’être? Months earlier, the CEO of Ripple, Brad Garlinghouse, had promised that if they emerged victorious from the SEC’s lawsuit, he would throw a “proper party” to honor and thank the XRP community.

Again, the crowd roared. Garlinghouse pointed to a tall, bald, muscular, goateed lawyer, John Deaton, who in many ways embodies the heart and soul and brains of the XRP Army.

Deaton raised a fist in solidarity. Pumped the fist. The crowd cheered like he’s a rock star, and to them he is. It was Deaton (with the help of XRP champions like Brad Kimes and “Digital Asset Investor“) who rallied the XRP community to petition the judge that, actually, they were buying XRP (not Ripple) and had never even heard of Ripple, thus (they argue) weakening the SEC’s argument. We’ll never know to what extent this factored in Judge Torres’ decision, but it’s possible that the XRP community saved the day.

So you could make the case that this 2023 Most Influential award should be given not just to Garlinghouse, but also the entire XRP Army.

Read the full article here: CoinDesk

In Landmark SEC Surrender, Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen Are Cleared Of All Baseless Allegations

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Business Wire. October 19, 2023.

Ripple, the leader in enterprise blockchain and crypto solutions, announced today that CEO Brad Garlinghouse and Executive Chairman Chris Larsen were cleared of all claims brought against them by the U.S. Securities and Exchange Commission (SEC). The SEC voted to dismiss charges with prejudice – a stunning capitulation by the government.

This victory is the third consecutive triumph for Garlinghouse, Larsen, and Ripple, coming on the heels of the July 2023 ruling that declared “XRP is not, in and of itself a security” and a subsequent October decision to deny the SEC’s request for an interlocutory appeal.

“For nearly three years, Chris and I have been the subject of baseless allegations from a rogue regulator with a political agenda,” said Ripple CEO Brad Garlinghouse. “Instead of looking for the criminals stealing customer funds on offshore exchanges that were courting political favor, the SEC went after the good guys – along with our entire company of innovators and entrepreneurs – who are building a regulated business based in the U.S. We look forward to the day this chapter is closed once and for all, now that the SEC has dropped the curtain on their absurd theatrics against Chris and me.”

Read the full article here.

The Irony of Interlocutory Appeal

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By John E. Deaton.

Following Ripple’s victory in July, the Securities and Exchange Commission (SEC) scrambled to save face by filing an appeal that fits their narrative. In August, the SEC sent a letter of intent to move for interlocutory appeal to Judge Torres. The letter outlined the agency’s intent to seek interlocutory appeal on the Judge’s ruling that the defendants’ programmatic sales and other sales of XRP failed the Howey test.

As I wrote when the letter was sent, I expected Judge Torres to grant the motion, and that is exactly what she did. I believe the move allows the judge to fully explain her reasoning in the case, further making it “appeal-proof,” as well as providing her the opportunity to address anything Judge Jed Rakoff has said. Judge Rakoff, presiding over the SEC v. Terraform Labs case, rejected the company’s motion to dismiss, and disagreed with Judge Torres’ approach regarding Howey. The SEC alleges that Torres’ ruling could impact their other lawsuits, which are of a similar nature. However, this is the weakest of their arguments.

With the right to file a formal motion for an interlocutory appeal granted, Judge Torres can now distinguish between her actual ruling in the Ripple case, versus what Judge Rakoff purported it to be. It was the SEC who categorized the different sales, not Judge Torres.

Recently, the SEC has filed its reply memorandum in further support of its motion to certify interlocutory appeal, now claiming that it is only interested in an efficient adjudication of the case, unlike Ripple, who the SEC contends wishes to prolong litigation. (Laughable, I know).

The facts are as follows: the SEC is asking for a stay on everything—which by definition and operation, would automatically prolong the entire litigation. Similarly, as there is still a trial that needs to take place, an interlocutory appeal would not end litigation and would add an appeal to the overall process. Should an early appeal be granted, it will take another year and a half to two years for the U.S. Court of Appeals for the 2nd Circuit to rule on the issue.

If the SEC were to win at the 2nd Circuit, which I believe they won’t, then the case gets remanded back to Judge Torres, who would apply the facts of the case to the other Howey factors not yet analyzed.

In other words, even if the 2nd Circuit disagrees with Judge Torres’ analysis of Howey’s third prong, the SEC does not win at summary judgment. Instead, Judge Torres would then apply the investment prong and the common enterprise prong of the Howey test, again, further prolonging the case.

I believe Judge Torres could, should, and would, give the same result even after a successful SEC interlocutory appeal. The SEC then could ask for a second interlocutory appeal to the 2nd Circuit on Torres’ common enterprise analysis.

Now, if the SEC loses at the 2nd Circuit, the case comes back to Torres for trial. Then after the trial, there would be the usual appeal on all issues. The SEC’s claim that it wants faster adjudication than Ripple does, might be the dumbest argument I’ve heard yet. It flies in the face of its request for an early appeal, while asking for a stay!

This irony is exactly what the motion for interlocutory appeal boils down to. The SEC has attempted to regulate by enforcement through the courts, and now that the agency has received a ruling it deems incorrect, the SEC will spitball separate arguments from ongoing cases into its appeal process—delaying litigation across the board. These are the desperate tactics of a regulator who lost the case.

The SEC Is Not the King

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By Frank Francone. (RealClear Policy). September 28, 2023.

In late 2020, the U.S. Securities and Exchange Commission (SEC) sued Ripple Labs, Inc. (Ripple), and two of its top executives, Brad Garlinghouse and Chris Larsen, alleging that the cryptocurrency XRP which is used by the company in its financial services products is a “security” under the Securities and Exchange Act of 1934. 

Dubbed “the cryptocurrency case of the century” by Forbes, the SEC sought billions of dollars from Ripple and its founders for seven years of XRP sales without registering the token with their agency. The civil filing, based on a sweeping legal theory that a digital asset itself is a security, immediately destroyed more than $15 billion dollars in wealth of innocent holders of XRP who had acquired the token on the secondary markets.

On July 13, 2023, Judge Analisa Torres rejected the SEC’s argument that sales of XRP on exchanges is the sale of a security. Torres ruled that sales by Garlinghouse, Larsen and the hundreds of thousands of secondary market traders of XRP on crypto exchanges were blind-bid transactions, where the parties do not know each other nor the provenance of the assets being traded. Therefore, they couldn’t have been securities. 

Read the full piece by Frank Francone in RealClear Policy here: “The SEC Is Not the King”

The SEC Chooses to ‘Regulate’ Cryptocurrencies Via Lawsuit

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By Hassan Tyler. (RealClear Markets). September 5, 2023.

Over the last two Administrations, successive chairmen of the Securities and Exchange Commission (SEC), from both political parties, have led the agency through an erratic and confusing approach to regulating cryptocurrencies. What both chairmen had in common was a decision to not use rulemaking and public engagement to write a clear playbook for market participants, but to aim discretionary lawsuits at specific crypto companies and crypto trading exchanges to regulate the market instead.

Unfortunately, one of the SEC’s highest profile crypto lawsuits has backfired by pulling back the curtain to show several officials ignoring the law and apparent conflicts of interest as they picked winners and losers in the nascent industry.

Last month, Ripple Labs notched a landmark legal victory against a December 2020 SEC enforcement action where the agency alleged the cryptocurrency XRP qualifies as an investment contract in Ripple and that all sales, including on the secondary markets, are unregistered securities. Judge Analisa Torres ruled that only early institutional sales of the XRP token that were specifically packaged as investment contracts fall under the SEC’s jurisdiction. 

Read the full piece by Hassan Tyler here: Real Clear Markets: “The SEC Chooses to ‘Regulate’ Cryptocurrencies Via Lawsuit”

The SEC Fought the Law and the Law Won

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By Roslyn Layton. July 27, 2023. (DC Journal).

After three years, the cryptocurrency case of the century — SEC v. Ripple — ended victoriously for the people the U.S. government is supposed to protect: consumers and small investors. 

The case pitted the Securities and Exchange Commission against a leading U.S. crypto innovator. It also tested America’s leading financial regulator against 90 years of federal law and jurisprudence.

Fortunately, the law won. The ruling by Judge Analisa Torres of the Southern District of New York schooled the SEC in the law that created the agency and leaned into the 1946 Howey Supreme Court decision that defines the SEC authority. A security under the Howey test exists only when there is “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” Hence, most of the purchases of XRP cryptocurrency were not securities trades.

Unfazed by the enormous public attention on the case, Torres focused specifically on the SEC’s accusations against Ripple and its two senior executives about their sales of the XRP cryptocurrency dating back a decade and strictly applied the law.

Read the full article here.

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