Ripple on SEC Lawsuit
The Securities and Exchange Commission (SEC) announced a high-profile enforcement action against a large cryptocurrency corporation on December 21, 2020. Ripple Labs, Inc. is accused of violating federal securities laws, according to the SEC complaint. Ripple is a well-established corporation that was founded in San Francisco in 2012, and its founders are considered crypto industry pioneers. Ripple’s cryptocurrency, dubbed XRP, was allegedly offered as an unregistered security, according to the SEC lawsuit. Because XRP was created, distributed, and sold by Ripple in a “centralized form,” the SEC claims it is a security, not a commodity or other type of asset.
Sarah Netburn, a Magistrate Judge who presided over a discovery hearing in the United States. The SEC’s unjustified and erroneous arguments, as well as some embarrassing truths for former SEC Chair Jay Clayton and former SEC Corporation Finance Division chief William Hinman, were exposed in District Court for the Southern District of New York.
The hearing revealed that the case against the San Francisco financial business was built on a faulty foundation. It claimed that XRP, Ripple’s digital currency for cross-border transfers, has been unregistered since 2013 and that the SEC only announced it on Clayton’s final day in office in December. The SEC now considers every Ripple sale for the past seven years to be an illegal securities trade, based on this late-game regulatory conclusion.
And that Ripple, its two top executives involved in the lawsuit, as well as millions of retail investors, should have known all along, even if the agency didn’t. To get the case across the transom on the day Clayton walked out the door, due process and fair notice were thrown out the window.
The Ripple case has been criticized.
The SEC’s case against Ripple has been criticized by many in the crypto and business worlds. Some fear that it will suffocate a budding industry aimed at making technology, finance, and money itself more accessible to the general public. Others argue that the case was hurriedly drafted, given that it was submitted just one day before SEC Chairman Jay Clayton left.
In reality, only three of the five SEC commissioners voted to file the Ripple complaint, which is the bare requirement for an SEC action to move forward. Others argue that the complaint appears to be without merit, as the SEC has been aware of XRP since 2013, and that XRP is a real technology with a market valuation of around $25 billion. Some think that the SEC would be better off waiting and pursuing a more clear-cut case under the law.