• Can the Howey test be applied to the classification of crypto-currencies?
• Did Ripple Labs win a stage?
According to some legal experts, the SEC is on the verge of a historic defeat which could also have devastating effects on the future role of the SEC in crypto regulation, as the decision could significantly limit the powers of the SEC to regulate crypto. crypto sector. What influence would the SEC have on cyber-currency then?
The Ripple Trial
In the SEC lawsuit against Ripple, which has been ongoing since December 2020, for trading unregistered securities with the XRP token since 2013, the SEC has been repeatedly asked to submit documents, internal emails and drafts of Hinman’s 2018 speech that had previously been kept secret. . Ripple’s defense focuses on these documents because they want to prove that XRP is not a security. Former SEC Director of Corporate Governance William Hinman used Ethereum to illustrate this in his 2018 speech that cryptocurrency is not security because the ledger has become “decentralized” in the world. over time, writes Forbes. Ripple was recently able to register a success here: the so-called Hinman documents were to be released by the SEC – the contents remain confidential, however, said Chief Counsel Stuart Alderoty.
The issue of securities
Brad Garlinghouse, CEO of Ripple, wrote via Twitter that he does not believe the SEC when it claims to act in the interest of transparency and disclosure and when the truth emerges, the modesty of the action becomes apparent. Garlinghouse was referring to an article by Ripple’s chief prosecutor, Stuart Alderoty, who pointed out that the fight to have the Hinman documents considered was worth it.
The SEC wants you to think it cares about disclosure, transparency, and clarity. Don’t believe them. When the truth finally comes out, the shame of their behavior here will shock you. https://t.co/rqEzDXEx1A
-Brad Garlinghouse (@bgarlinghouse) October 20, 2022
During the proceedings, the United States Securities and Exchange Commission could not prove that the cybercurrency was linked to the performance of the company and that a purchase of the cryptocurrency represented an investment in the company. Ripple. According to Forbes, even their own expert had to admit that the SEC couldn’t prove their case.
Tens of thousands of XRP token holders then tried to intervene in the proceedings by asking the responsible judge to implicate them in the proceedings as well. He rejected an intervention, but recommended that supporters write so-called Amici memoirs instead. In the meantime, 12 such Amici letters have been submitted. According to Chief Counsel Stuart Alderoty and CEO Garlinghouse, this is an exceptionally high number at this point, as supporters have realized the extent of the damage the SEC is causing to the crypto-economy as a whole.
What consequences could the judgment have?
According to Forbes, Ripple’s chief attorney has repeatedly been willing to pay a fine in order to reach an agreement with the potential authority. However, the prerequisite for this is that the supervisory authority declares that the current XRP token is not a security. However, SEC Chairman Gary Gensler remains committed to sticking with the process, even if there are no compelling arguments so far.
The SEC also wants to continue using the so-called Howey test for classifying cryptocurrencies, because buying cryptocurrencies is “investing money in a joint venture, with the reasonable expectation of profit through to the efforts of others. definition. However, a judgment (possibly also an appeal judgment) could completely overturn the basis of the Howey test for the classification of cryptocurrencies. It would also challenge the jurisdiction of the SEC as a regulator.
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