SEC v. Ripple: Memos “overall favorable to Ripple and the Individual Defendants”, says expert

The court ordered the unsealing of much-awaited legal memos on XRP by law firm Perkins Coie LLP. The documents were requested by former Ripple chief executive Chris Larsen and delivered in February 2012 and October 2012.

The evidence suggests that Ripple executives made efforts to avoid XRP from being considered a security by the Securities and Exchange Commission.

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Memos suggest Ripple was being careful, not reckless

James K. Filan, a Connecticut-based attorney that has been following the SEC v. Ripple case, has shared his first impressions on the legal memos.

“Overall favorable to Ripple and the Individual Defendants. Both memos are from Perkins Coie. The first memo was prepared in February 2012 and sent to Jed McCaleb and Jesse Powell. It says that if NewCoin is sold in what now would look like an ICO (I didn’t see the term ICO used), it would be likely that it would be considered a security. But Ripple then revised its business plan and went back to Perkins Coie, which issued a second memo in October 2012. This second memo was sent to Chris Larsen and Jed McCaleb”, he said.

“The October memo was more positive and while it said that there was a “small” risk that the SEC could disagree, Perkins Coie concluded that Ripple Credits should not be considered securities. The memo also suggested steps Ripple could take to minimize the risk that the SEC would disagree with Perkins Coie. The memos cover the full landscape of legal issues (not just the issue of securities) and I think show how careful Ripple was trying to be. Also, this was 5 years before the SEC really even started talking about digital tokens”.

“It seems to me that Ripple was being very proactive, which is very important. There certainly is nothing in these memos that suggests that Ripple was being reckless or ignored any substantial risks. In fact, the memos suggest the opposite – that Ripple was being careful”. 

Perkins Coie LLP explained how to avoid turning XRP into a security

The legal memos sent by law firm Perkins Coie LLP show how its analysis helped Ripple to design the digital asset in order to avoid being regarded as an investment contract.

Initial conclusions include that:

• Coins that are purchased are likely to be prepaid access;
• If sold to investors, Coins are likely to be securities;
• Coins not initially sold may still constitute securities if sold at a later date;
• Coins may become commodities;
• Exchanges may be money transmitters or currency exchangers;
• Coins are unlikely to be regulated under counterfeiting laws;
• Founders and Foundation may be subject to illegal gambling regulations;
• Accuracy in promotion of NewCoin will be necessary to avoid unfair and deceptive trade practices;
• Founders and Foundation may face risk related to aiding and abetting illegal activities perpetrated using Coins;
• Users of Coins will have obligations to comply with state and federal tax laws relating to transactions involving Coins.

As to Recommendations, Perkins Coie LLP said:

• Do not sell Coins;
• Accept investment through an entity;
• Do not collect fees;
• Take steps to avoid misleading purchasers or recipients of Coins as to their value or the risks associated with them;
• Avoid stating or implying that the Coins are equivalent to or compete with USD or any other type of government issued currency;
• Do not advertise the Coins for use in illegal internet gambling;
• Do not promote the Coins for illegal or questionable uses, and educate the public and users that NewCoin does not oversee or otherwise control the use of the Coins;
• Do not use Coins in lieu of payment to employees;
• Founders should consider publishing NewCoin usage conditions.