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SEC case against Ripple: Was the crypto a security or not?

by | Jun 25, 2022 | Securities Litigation

The United States Securities Exchange Commission (SEC) filed a lawsuit against Ripple claiming that it sold its cryptocurrency, XRP, as an unregistered security. As such, the SEC claims Ripple owes billions in damages.

Why should my firm care about this case?

This case will likely set the tone for future crypto regulation. Those that could have dealings with this form of currency are wise to keep up to date on how this case progresses through the system. If the SEC wins, the government may expand crypto regulation efforts.

What are the arguments?

The SEC points to the Supreme Court’s 1946 case that led to the development of the Howey Test to support their claims against Ripple. The courts use the Howey Test to help determine if something is an investment contract or security. In this case, they claim that it sets XRP out as a security.

Ripple counters that its sales of XRP followed all applicable rules and regulations and like sales of ether, another digital asset. Ether is the digital asset by Ethereum, beat out only by the bitcoin token in popularity. Part of Ripple’s argument hinges on the release of documents connected to a speech given by Bill Hinman, the SEC’s former director of corporate finance. Ripple states that these documents are important for two key reasons:

  • Internal discord. Ripple has stated that the documents will show top SEC executives were not on the same page about how to handle the disagreement and did not believe XRP was a security. If true, this would help Ripple to combat the SEC’s claims.
  • External influence. Ripple also argues that these documents will show that the agency was influenced to give another form of crypto, ether, a “free pass” as a non-security.

Ultimately, these two points would build Ripple’s argument that the SEC unfairly targeted Ripple in this lawsuit.

We will provide updates on the progression of this case as they become available. At this time, it serves as an important reminder that the regulation landscape for cryptocurrency is constantly evolving and those who use this type of asset are wise to stay abreast of the changes as they go into effect to reduce the risk of any fallout directly impacting their holdings or business dealings.

Commercial LitigationSecurities LitigationSEC case against Ripple: Was the crypto a security or not?
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