July 19, 2023
By Sharan Kaur Phillora
Blockchain company Ripple’s recent partial legal triumph against the U.S. Securities and Exchange Commission (SEC) has ignited new hope for the broader crypto industry. The ruling is anticipated to embolden exchanges and crypto companies to dispute the SEC’s jurisdiction further.
Here’s what we know:
SEC Chair Gary Gensler, who portrays the crypto sector as a “Wild West,” had been pushing for increased regulation, maintaining that most crypto tokens fall under securities. This stance has seen regulatory actions against multiple trading platforms, including the top US exchange, Coinbase.
The landmark ruling by U.S. District Judge Analisa Torres supports Ripple’s claim, marking the first time a court has questioned the SEC’s authority over cryptocurrencies. “This case will cause people to rethink, and I think it already has,” said Robert Frenchman, an industry lawyer.
The SEC filed a lawsuit against Ripple in 2020, alleging the company and its executives conducted an unregistered $1.3 billion securities offering via XRP sales. However, Torres ruled that Ripple’s sales on public cryptocurrency exchanges did not constitute securities offerings, as there was no reasonable expectation of profit reliant on Ripple’s actions.
This ruling is a game-changer, potentially providing a robust defense for exchanges like Coinbase and Binance. Teresa Goody Guillen, a lawyer in Washington, said it supports the exchanges’ arguments that the digital assets traded on their platforms should not be classified as securities.
However, the judgment was not a complete victory for Ripple, as the judge also ruled that Ripple’s direct XRP sales to investors should have been registered as securities.
While the decision was hailed within the crypto industry, some experts anticipate an SEC appeal. Ripple’s Chief Legal Officer, Stuart Alderoty, noted that Ripple would not shy away from an appeal. He expressed confidence in the solidity of the ruling, stating that it could be amplified and endorsed by an appellate court.
Industry experts acknowledged the potential risks of an appeal to the SEC. If the 2nd Circuit adopts the ruling’s rationale, the SEC’s jurisdiction over crypto markets might be significantly limited, said Philip Moustakis, an attorney at Seward & Kissel.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.