‘Possible short-lived victory for Ripple against SEC: legal expert’
'Possible short-lived victory for Ripple against SEC: legal expert'
The Ripple-SEC Legal Battle: A Ripple of Joy or a Short-Lived Victory?
The recent news of Ripple’s partial victory against the US Securities and Exchange Commission (SEC) has sent a ripple of joy throughout the entire crypto industry. However, legal experts suggest that this victory might be short-lived, as the SEC has grounds to appeal the decision, potentially dragging out the legal battle for much longer.
The SEC’s Lawsuit Against Ripple Labs
In December 2020, the SEC filed a lawsuit against Ripple Labs, alleging that Ripple had conducted an unregistered securities offering worth over $1.3 billion through the sale of XRP. The SEC considers XRP to be a security under federal securities laws. However, on June 13, the court determined that the random “programmatic sale” of XRP to regular investors does not qualify as the sale of an unregistered security under the Howey test.
It’s important to note that while the court ruled in favor of Ripple for sales to regular investors, it found that sales to institutional investors fell under the Howey test. The Howey test is used in the United States to determine whether a transaction qualifies as an investment contract. The court reasoned that regular investors couldn’t know who was selling them the XRP, unlike institutional investors who would expect Ripple Labs to use the capital for the betterment of the Ripple ecosystem.
Challenging the Court’s Reasoning
According to legal expert Bryan Jacoutot, the court’s reasoning is weak, and the Howey test was misapplied in this case. Jacoutot believes that those buying XRP would have also expected to make a profit from the efforts of Ripple Labs. He compared the ruling to the Ethereum Foundation’s pre-sale of ETH, where participants knew they were buying from the foundation. If the XRP ruling is viewed in a similar manner, it would mean that institutional investors of the ETH pre-sale also bought unregistered securities.
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What Does the Ruling Mean?
Jacoutot argues that the ruling opens up a few loopholes that can be exploited. For instance, attorney Joe Carlasare explains on Twitter that the logic of the ruling leaves room for lawfully launching a pyramid scheme, where profits from “programmatic sales” to retail investors can be distributed to institutional investors.
Ripple CEO Brad Garlinghouse expressed relief at the ruling, as it allows the company to promote the various use cases for Ripple and its technology without worrying about legal repercussions. However, it’s important to note that an appeal by the SEC could prolong the legal battle for years, creating further uncertainty in the crypto market.
The price of XRP has skyrocketed following the ruling, experiencing a 50% increase this month and currently trading at $0.7154.
The recent partial victory for Ripple against the SEC has provided some relief for the company and the crypto industry as a whole. However, the possibility of an appeal by the SEC could extend the legal battle, leading to more uncertainty in the market. The ruling itself has sparked discussions about the application of the Howey test and the potential implications for other cryptocurrencies like Ethereum.
As the blockchain industry continues to evolve and face legal challenges, it is crucial to closely monitor developments and understand the potential impact on various cryptocurrencies and the broader market.