Ripple Proves the SEC Must Reevaluate Its Regulatory Approach

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.”

Read the full article here.

Ripple notches landmark win in SEC case over XRP cryptocurrency

By Jody Godoy. July 13, 2023. (Reuters).

Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges, a U.S. judge ruled on Thursday, delivering a landmark legal victory for the cryptocurrency industry that sent the value of XRP soaring.

XRP was up 25% after the ruling, according to Refinitiv Eikon data.

But the ruling was also a partial win for the U.S. Securities and Exchange Commission, which has brought scores of cases against crypto developers, although Ripple Labs is by the far the largest to be decided by a judge. U.S. District Judge Analisa Torres ruled that Ripple violated federal securities law by selling the cryptocurrency XRP directly to sophisticated investors.

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Coinbase Will Relist XRP Following Ripple Summary Judgment

By Katherine Ross. July 13, 2023. (Blockworks).

Coinbase will re-enable trading for XRP following a Thursday court ruling. 

A U.S. District Judge, Analisa Torres, ruled that Ripple’s XRP is not a security when traded on secondary exchanges, even if its institutional sales do meet that definition — handing Ripple partial victory in a case that dates back to 2020. 

Following the ruling’s release, Coinbase chief legal officer Paul Grewal tweeted that “it’s time to relist” XRP.

Read the Full Article Here.

The Hinman Documents Reveal a Deceitful SEC

By Roslyn Layton, PhD. June 13, 2023. (DC Journal).

In February, I filed a motion to intervene in SEC v. Ripple Labs, the first big crypto enforcement action filed in December 2020 by the Securities and Exchange Commission (SEC). I have written two dozen stories about the serious implications of the case, particularly on the sweeping regulatory overreach at the heart of the SEC’s arguments and the naked power grab it represents.

The agency spent most of the last two years fighting Ripple’s attempts to obtain internal SEC emails and documents on the drafting of a 2018 speech given by then-Director of Corporation Finance William Hinman where he introduced a long list of “what we look at” when determining whether a digital asset is a security.

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Why the XRP Army Keeps Fighting

By Jeff Wilser. June 13, 2023. (CoinDesk).

XRP’s uber-passionate supporters believe the SEC unfairly targeted Ripple for securities violations while mysteriously giving Ethereum a free pass. Do they have a point?

Brad Kimes is a professional drummer. For 30 years he played in various bands — rock, funk, blues, R&B, you name it. Between gigs, he worked as an aspiring entrepreneur, and he invented a baby playpen that you could use on the beach. He found suppliers in China. Kimes soon became a global importer, and to make cross-border payments, he was forced to use the clunky international banking system called “SWIFT.”

SWIFT was not swift. It was slow and costly. “There’s no tracking ID,” says Kimes. “And when the payment gets there six days later, you find out there’s a currency manipulation that had taken place. And you have to pay the difference.”

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Analisa Torres: The US District Judge at the Helm of the Crypto Market’s Future

By Bary Rahma. June 9, 2023. (Be In Crypto)

Analisa Torres: The Judge Deciding Crypto’s Fate

From humble beginnings in the law offices of New York City to the high-stakes courtroom of the US District Court, Judge Analisa Torres has built an illustrious legal career defined by rigor, integrity, and an unerring commitment to justice.

Born into a family deeply rooted in the justice system, Torres was no stranger to the inner workings of US law. Her father, Frank Torres, served as a New York Supreme Court justice, while her grandfather, Felipe N. Torres, was a Family Court judge.

Torres’ own journey in law began in earnest with her education at Harvard College and Columbia Law School. After graduation, she served as a real estate associate at various law firms in New York City. Her tenure as a judge began with the New York City Criminal Court. She then served as an acting justice of the New York Supreme Court in the Bronx.

The pinnacle of her career came in 2013 when President Barack Obama nominated her as a US District Judge for the Southern District of New York.

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

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. 

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

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.

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

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.’”

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SEC Crypto Litigation Ventures Into Dangerous Legal Territory

By John E. Deaton.

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 whiskeycondos, 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/  

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