Ripple’s XRP on the spot: Crypto Mom’ points to SEC’s inability to articulate why an asset is a security

Rick Steves

“If the SEC cannot easily articulate an unassailable legal theory for why particular assets are securities, is the line as clear as the SEC maintains it is?”

SEC Commissioner Hester Peirce spoke at the Texas Blockchain Summit to suggest a way forward in crypto regulation.

The official is known to be a fierce critic of the agency’s regulation by-enforcement practice in the digital asset space.

The speech explored the lack of clarity in the ecosystem, the role of the SEC for investors and jurisdiction, and the need to admit that if something is decentralized it is out of the SEC’s scope.

Although the whole discourse is relevant for the digital asset industry, we’re going to focus on the second part (out of six): “Are we enforcing rules by settling or settling for ambiguity?”.

“The SEC points to Supreme Court precedent and our own growing list of enforcement actions and says the case is closed—most digital assets are securities. Even if we were to accept enforcement as a proper way to provide clarity, it is not working.

“Definitive determinations of security-ness have only occurred in the few instances in which a court (rather than the Commission) has decided the matter. Even in those instances, a determination that a token was offered initially as a security does not say anything about the token itself being a security, either at the time of the initial sale or in secondary transactions.”

That is the case with the SEC v. Ripple lawsuit. The regulator has brought the blockchain company to court because it allegedly sold and marketed XRP in the form of an investment contract: a security.

Ms. Peirce, however, hasn’t and won’t mention Ripple directly because SEC officials are not allowed to comment publicly on ongoing SEC lawsuits.

The expectation is that this case will also end in a settlement rather than a court ruling. That’s what history has shown so far.

“Most of our crypto enforcement actions, however, have not been litigated actions; rather they have ended in settlements, which are not good vehicles for careful legal analysis. When a party settles an SEC enforcement action, it often is trying to get the case wrapped up so it can move on. It has no incentive to force the SEC, as a condition of the settlement, to lay out a clear legal analysis.”

This is where Ripple stands as a game-changer in the industry, somewhat like Neo when refusing to run away from Mr. Smith in The Matrix.

Ripple is calling the SEC’s bluff and wants to see the cards. That’s why the Defendants want to compel the SEC to answer its interrogatories on how the Howie Test applies to XRP and it is closer than ever to prove that the SEC lied to the court in regard to Hinman’s “personal opinions”, only to name a few of the disputes in the lawsuit.

The SEC continues to hold the “XRP was sold as a security” card and the dispute over recordings that can be used as evidence “is not looking good for Ripple“, according to attorney Jeremy Hogan.

“If the SEC cannot easily articulate an unassailable legal theory for why particular assets are securities, is the line as clear as the SEC maintains it is? The ambiguity ultimately serves us well because it effectively forces any actor with any connection to digital assets into our regulatory jurisdiction”. 

This statement strikes a blow on the SEC and its power grab that has been raising alarm bells in Congress and Senate as well as its sister regulator, the CFTC.

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