Pushback against the SEC’s Ripple case reveals its irrational and illogical basis.
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When the U.S. Securities and Exchange Commission filed its multi-billion dollar lawsuit against blockchain technology company Ripple and two officials in December, the timing was particularly bizarre. The complaint alleged that Ripple’s sale of the XRP cryptocurrency from 2013 to the present was an illegal, unregistered security offerings rather than the circulation of digital tokens to build a payment network. The SEC was waiting seven years to make this claim with billions of XRP tokens now passing through the secondary crypto markets strangely enough. But the case was also filed in the final hours of outgoing SEC chairman Jay Clayton and then dumped on a commission that was fairly split toward a new Administration.
Looking at the volley of filings heating up the dock of the case, it has come to light that the SEC’s decision to sue Ripple was wrong. And in the last few days, a series of improvements are beginning to make it look like a catastrophic mistake that incoming chairman Gary Gensler will have to resolve.
The SEC may not have anticipated the storm that Clayton’s last action has begun, and has revealed the sexual weakness in the decision to sue. It began on Jan. 1, when a group of XRP guards led by Rhode Island attorney John E. Deaton hit back at the group.
Deaton, a personal injury lawyer with class action experience, filed a petition in U.S. District Court in his home state to force the SEC to ban his XRP holdings from being defined as security. He says he did not buy XRP as an investment contract and never thought it was a security, and the SEC’s action against Ripple did him undue damage when his value fell. and forcing crypto exchanges to start listing the token. After submitting his act, Deaton arsa he lacked requests from thousands of XRP co-vendors who wanted to get into his case.
Last Friday, the SEC’s response to Deaton landed in Rhode Island. For those watching Ripple ‘s case in New York, they had a surprising argument: the SEC sought to cancel Deaton’ s petition because it has not yet been decided whether XRP is a security. Put two and two together, and the SEC says Ripple and its two chief executives must have had reasonable experience of something seven years ago that the agency itself was unsure about last Friday. One wonder which part of the 1933 Securities Act the SEC will ultimately use to argue is that Ripple has a duty to exercise legal powers in the United States.
Co-defendants Brad Garlinghouse and Chris Larsen, Ripple’s chief executives, had sent letters to a New York judge on March 3, intending their own moves to overturn the lawsuit with arguments about “fair warning and process appropriate ”. Two days later, the SEC ‘s response to Deaton only made their arguments even clearer. Do SEC employee lawyers fail to show up for Zoom meetings to coordinate with each other? Unsurprisingly, Ripple filed Freedom of Information Act (FOIA) requests for documents and communications within the SEC that could show that even seven years ’worth of high-profile developments were underway -related to XRP, the group’s actions were so vague and confusing. Kind of like the opposite films they made just two days apart in New York and Rhode Island.
On March 8, the SEC appeared to be in a panic. She dismissed a letter to a New York judge urging her to remove the “fair notice” defense from Ripple’s case altogether, saying it was “inappropriate” and “sputum” and calling for an immediate hearing to co -do it about. If the judge does not agree, one can not wonder what is declining in the communication within the SEC that Ripple could find from that FOIA request and other detection measures. What internal work went into the 2018 call by then-Corporate Finance Director William Hinman that ether (ETH) is not a security, since it is similar to XRP? Which crypto exchanges requested clear guidance from the SEC on the legal status of XRP before listing the token, and what were the group’s internal discussions and responses? How many opportunities has the SEC given since 2013 to give Ripple and XRP holders a fair warning about XRP status, and what has been done in each decision to ignore those opportunities?
I announced this issue of the cryptocurrency test of the century in December, and I am getting confirmation with each development. Not only is the future of the U.S. crypto industry involved, but the arrogance of unregulated regulators is making policy through coercion on testing as well. The SEC has made it clear that it does not matter how many investors it harms or how many companies it drives overseas in an attempt to extend authority beyond common sense. Doing what appears to be a class action lawsuit against the SEC on this case reinforces the backing against surrender.
The most interesting development this week was the introduction of bipartisan legislation by Representative Patrick McHenry (R-NC), a senior Republican on the House Financial Services Committee, to establish a public-private working group led by the SEC and the Futures Trading Commission (CFTC) to begin striking out a clear regulatory framework for digital assets. I participated in a Real Clear Policy panel discussion in January with McHenry on crypto regulation, and discussed his decision to suspend the organization’s referrals. It was on the same day that President Biden nominated Gary Gensler as chairman of the SEC.
Gensler said in its Senate confirmation hearing in February that he believes the SEC should only use its enforcement resources when it can deal with major problems in the markets. So it would be a reason for the new chairman to address the biggest problem for crypto markets by investing SEC resources in McHenry ‘s working group, rather than in Jay Clayton’ s potentially misleading lawsuit. exploding against the group.