Ripple and the SEC Agree on One Thing: Let the Judge Decide XRP’s Fate

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  • Rip­ple believes the secu­ri­ties reg­u­la­tor has no fac­tu­al dis­pute, and hence no case to take to trial
  • The SEC “can­not sat­is­fy a sin­gle prong of the Supreme Court’s Howey test,” gen­er­al coun­sel Stu­art Alderoty said

Blockchain com­pa­ny Rip­ple Labs and the US secu­ri­ties reg­u­la­tor want a fed­er­al court judge to rule on the Decem­ber 2020 law­suit that alleged the firm ille­git­i­mate­ly raised $1.3 billion. 

In sep­a­rate motions filed on Sept. 17, both par­ties called for a sum­ma­ry judge­ment to decide whether Rip­ple vio­lat­ed fed­er­al secu­ri­ties laws or to dis­miss the case alto­geth­er. Sum­ma­ry judge­ments are typ­i­cal­ly filed when one or all par­ties believe ade­quate evi­dence has been pro­vid­ed to estab­lish a rul­ing with­out the need to go to trial.

Rep­re­sen­ta­tives for Rip­ple and the SEC asked Judge Anal­isa Tor­res to arrive at a con­clu­sion based on doc­u­men­tary evi­dence filed to a court data­base on Sep­tem­ber 13 and all pri­or pro­ceed­ings in the case.

The SEC sued Rip­ple and two exec­u­tives — founder Chris­t­ian Larsen and CEO Brad Gar­ling­house — about two years ago over alle­ga­tions it raised funds via an ille­gal secu­ri­ties offer­ing through sales of XRP tokens. 

In turn, Rip­ple dis­put­ed the alle­ga­tions and claimed XRP should be treat­ed as vir­tu­al cur­ren­cy, not a secu­ri­ty. It believes the reg­u­la­tor has no evi­dence to sup­port its argu­ment and thus has no fac­tu­al dispute. 

“When asked in dis­cov­ery, the SEC refused to iden­ti­fy a con­trac­tu­al basis for a sin­gle offer and sale of XRP. Thus, because the Secu­ri­ties Act’s def­i­n­i­tion of an ‘invest­ment con­tract’ requires an under­ly­ing con­tract, the SEC has no case to take to tri­al,” Rip­ple wrote in its motion.

In August last year, the firm com­pelled the SEC to iden­ti­fy how the Howey Test — the Supreme Court case for deter­min­ing whether a trans­ac­tion qual­i­fies as an invest­ment con­tract — applies to Ripple’s trans­ac­tions in XRP.

Ripple’s gen­er­al coun­sel Stu­art Alderoty tweet­ed that he believes the SEC isn’t able to jus­ti­fy its claims. “After two years of lit­i­ga­tion, the SEC is unable to iden­ti­fy any con­tract for invest­ment (that’s what the statute requires); and can­not sat­is­fy a sin­gle prong of the Supreme Court’s Howey test. Every­thing else is just noise,” he wrote.

The out­come of this case would mark a sig­nif­i­cant prece­dent, as it would help in deter­min­ing which cryp­tocur­ren­cies can be termed secu­ri­ties. In case the SEC wins, XRP would be con­sid­ered a security. 

Ripple and XRP are independent 

Rip­ple and XRP have often been con­fused for being the same thing, and even Google search­es for “XRP” ordi­nar­i­ly return Rip­ple as a result. 

But Rip­ple is a soft­ware com­pa­ny inde­pen­dent of XRP, and XRP exists even with­out Rip­ple. Rip­ple does not issue or over­see the XRP token. The firm’s chief mar­ket strate­gist Cory John­son point­ed out at a Yahoo Finance sum­mit in 2018 that he was frus­trat­ed at how peo­ple are unable to dis­tin­guish between the two.

“I mean, no one calls Exxon Mobil oil. Exxon Mobil has a vest­ed inter­est in see­ing that oil is suc­cess­ful, but that doesn’t mean it’s the same thing,” he said.

Key to the government’s case is the fact that XRP is not found in nature, but its 100 bil­lion tokens were rather cre­at­ed by Rip­ple Labs, through what’s known as a pre-mine.

Cofounder, ex-CEO and exec­u­tive chair­man, Chris Larsen, cofounder Jed McCaleb, and cur­rent CEO Brad Gar­ling­house all were allo­cat­ed bil­lions of XRP tokens, and Rip­ple Labs itself holds around 45 bil­lion XRP in escrow.

Ripple’s defend­ers have often sought to draw par­al­lels to Ethereum, which some mem­bers of the SEC have sug­gest­ed is not a secu­ri­ty. No clear guid­ance has yet been offered over what con­sti­tutes “suf­fi­cient decen­tral­iza­tion” to alter the agency’s designation.

For com­par­i­son, XRP cur­rent­ly has 138 val­ida­tors, com­pared to Ethereum’s post-Merge count of about 430,000.

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  • Shali­ni Nagarajan



    Shali­ni is a cryp­to reporter from Ban­ga­lore, India who cov­ers devel­op­ments in the mar­ket, reg­u­la­tion, mar­ket struc­ture, and advice from insti­tu­tion­al experts. Pri­or to Block­works, she worked as a mar­kets reporter at Insid­er and a cor­re­spon­dent at Reuters News. She holds some bit­coin and ether. Reach her at [email pro­tect­ed]

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