In this Article
Max Frilot provides a narrative to the Ripple Labs charges brought forward by the SEC in the US. What is the fallout expected from this? Furthermore, will this be a win or a loss for the Crypto industry? Find out more by reading below!
Background
Ripple Labs Case - A win for the Crypto Industry?
The SEC accused Ripple Labs and its executives, Brad Garlinghouse and Christian Larsen, of selling unregistered securities valued at more than $1.3 billion to the public over the years via their company offered XRP. Furthermore, the SEC filing included transactions from 2013 through late 2020, accounting for more than 14.6 billion XRP sold in return for cash. The lawsuit argued that XRP should be classified as a security, such as stocks or bonds, and therefore would be subject to SEC regulation.
The Case I
Ripple Labs Case - A win for the Crypto Industry?
The result of the SEC v. Ripple lawsuit could change the regulatory outlook for the entire crypto industry. If Ripple loses the case, the SEC could levy fines on numerous companies. Ripple has contested the SEC’s allegations and maintained that XRP should be considered a digital currency rather than a security. Garlinghouse has argued that Chairman Gary Gensler and other SEC officials have made statements in the past that contradict the regulator’s belief that XRP is a security.
Ripple has presented several pieces of evidence to support their argument against the SEC’s allegations.
- Commonwealth Case. Ripple referenced a Massachusetts District Court opinion in the case against Commonwealth Equity Services LLC., which they believe does not provide “additional authority” for the SEC to reject the fair notice defence. Ripple argues that the differences between their case and the Commonwealth case are significant and undermine the SEC’s arguments.
- Lack of Substantive Proof. Ripple has argued that the SEC failed to prove anything substantive against XRP. They contend that the SEC has not provided sufficient evidence to support their claim that XRP’s offering between 2013 and 2020 was an offering of an investment contract.
The Case II
Ripple Labs Case - A win for the Crypto Industry?
Notably, these pieces of evidence are based on Ripple’s perspective and arguments. Moreover, the ultimate determination of whether XRP is a security, or a digital currency will be made by the court.
Ripple Labs has achieved a partial victory in its legal battle against the SEC. Judge Analisa Torres of the U.S. District Court in the Southern District of New York ruled that Ripple’s XRP token is not a security when sold on digital asset exchanges. However, the judge also determined that XRP is a security when sold to institutional investors, as it meets the conditions set by the Howey Test. The SEC had accused Ripple of conducting an unregistered security offering through the sale of XRP.
Consequently, this ruling has significant implications for the SEC’s regulation of the cryptocurrency industry. Not only for Ripple Labs, but this could potentially impact other crypto projects. The case will proceed to trial on some claims, and another review is scheduled for spring 2024 to assess the role of XRP in protecting free access to cash in light of regulatory changes resulting from the implementation of FSMA 2023
Industry Reactions
Ripple Labs Case - A win for the Crypto Industry?
While some commentators warned that an appeal from the SEC would be a possibility, Haun Ventures CEO Katie Haun explained that the securities regulator will likely stay quiet as it benefits from the “current confusion” and that losing an appeal could jeopardise its future enforcement actions. Ripple Labs CEO Brad Garlinghouse also believes it may “take years” before the SEC lodges an appeal and that an appeal by the SEC would only reinforce Judge Torres’ decision that XRP is not a security.
However, U.S. lawyer and Ripple commentator Jeremy Hogan said he believes the SEC will launch an appeal after the trial between SEC and Ripple ends, which is scheduled for early 2024. The SEC is currently suing crypto exchanges Binance and Coinbase over alleged violations of securities laws, and some believe the recent Ripple case ruling, while not a binding precedent, could have an impact on the outcome of the cases.
Meanwhile, many crypto commentators and lawmakers have called for Congress to act and give legal clarity to crypto in light of the recent ruling. SEC Chair Gary Gensler’s reaction to the Ripple decision is mixed and still under consideration.
More about MK Fintech Partners Ltd.
Michael Kyprianou Fintech Partners Ltd is a Maltese licensed VFA Agent (virtual financial assets agent). It comprises a team of dedicated experts who provide services such as advisory, licensing and registrations of activities related to Fintech, Crypto, Blockchain, Investment, company incorporations and banking. and other ancillary services. MK Fintech Partners forms part of the Michael Kyprianou Group, a top tier international legal and advisory firm. It has established an enviable reputation as a broad-based legal practice over the years. Mainly by keeping at heart its principle to always exceed its clients’ expectations. MK has grown to become one of the largest law firms in Cyprus with offices in Nicosia, Limassol and Paphos. The MK Group’s international presence also includes fully-fledged offices in Greece (Athens and Thessaloniki), Malta (Birkirkara), Ukraine (Kiev), the United Arab Emirates (Dubai), United Kingdom (London), Israel (Tel Aviv), and Germany (Frankfurt).
The content of this article is valid at the date of its first publication. It intends to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information you read. For further information, contact us at MK Fintech Partners via email at contactmkfintech@kyprianou.com or by telephone +356 2016 1010.
