• Can the Howey test be used to classify cryptocurrencies?
• Has Ripple Labs achieved stage victory?
According to some legal experts, the SEC is on the verge of a historic defeat that could also have devastating effects on the SEC’s future role in regulating cryptocurrencies, as the ruling could severely limit the SEC’s powers to regulate the crypto sector. Then what effect would the SEC have on cyber currency at all?
Trial of Ripple
In the SEC’s lawsuit against Ripple, which has been ongoing since December 2020, over unregistered securities trading in the XRP token since 2013, the SEC has been repeatedly asked to produce documents, internal emails and Hinman’s 2018 speech drafts that were previously kept secret. . Ripple’s defense is focusing 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 in a 2018 speech that cryptocurrency is not a security because the ledger has “decentralized” over time, Forbes writes. Ripple has recently had success here: the so-called Hinman documents had to be released by the SEC – but the content remains confidential, according to general 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 be acting in the interest of transparency and disclosure, and when the truth comes out, the modesty of the actions will show. Garlinghouse was referring to a post by Ripple’s general counsel, Stuart Alderoty, who emphasized that the fight to consider Hinman’s documents was worth it.
The SEC wants you to think it cares about disclosure, transparency, and clarity. Don’t trust them. When the truth finally comes out, the disgrace of their behavior here will shock you. https://t.co/rqEzDXEx1A
— Brad Garlinghouse (@bgarlinghouse) October 20, 2022
During the proceedings, the US Securities and Exchange Commission failed to prove that the cryptocurrency is related to the company’s performance and that the purchase of the cryptocurrency constitutes an investment in Ripple. According to Forbes, even their own expert had to admit that the SEC failed their case.
Tens of thousands of XRP token holders then attempted to intervene in the proceedings by asking the judge in charge to make them defendants in the proceedings as well. It declined to intervene but recommended that supporters write so-called Amici briefs instead. Meanwhile, 12 such Amici letters have been sent. According to General Counsel Stuart Alderoty and CEO Garlinghouse, this is an exceptionally high number at this stage as supporters have realized the extent of the damage the SEC is doing to the crypto economy as a whole.
What are the consequences of the judgment?
According to Forbes, Ripple’s general counsel has repeatedly been willing to pay a fine to settle with an eventual authority. However, the prerequisite for this is that the supervisory authority states that today’s 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 yet.
The SEC also wants to continue using the so-called Howey test to classify cryptocurrencies, since buying cryptocurrencies is about “investing money in a joint venture with a reasonable expectation of profits from the efforts of others.” BeInCrypto cited the definitions. However, the ruling (and possibly an appeal) could completely overturn the basis of the Howey test for classifying cryptocurrencies. This would also challenge the SEC’s authority as a regulator.
The editors of finanzen.net
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