As was reported earlier today, the courts have issued a ruling on the Ripple-XRP lawsuit filed by the US Securities and Exchange Commission. In brief, the courts have filed an order that was a partial victor for Ripple and its executives.
CI has received multiple comments on the Order, and below are several comments we have received from top legal experts in the Fintech – digital asset sector.
Former SEC attorney and now a partner at Seward & Kissel, Philip Moustakis, stated:
“In my view, among the most interesting parts of the Court’s decision today are (a) the finding that XRP itself is not a security, like the oranges in Howey, and (b), more generally, the implications for secondary market transactions in tokens that may or may not have been offered and sold, in the first instance, in a securities offering. The Court states explicitly that it is not addressing secondary market sales because the question was not before it. However, in connection with Ripple’s sales on digital asset exchanges (referred to as the Programmatic Sales in the Order), the Court found there could not have been an investment contract, as a matter of law, because none of the buyers on the exchange were aware they were buying from Ripple.”
Moustakis said that in the court’s opinion, the “expectation of profits from the efforts of others,” under Howey, derives from a contract between the buyer and seller for the purpose of fundraising. The Court applied the same reasoning to Larsen and Garlinghouse’s sales on exchanges.
“In other words, the logic of the Court’s decision could support an argument that facts and circumstances that may result in the finding that a direct token purchaser had a reasonable expectation of profits from the efforts or the issuer, promoter, or third party, including representations made by the promoters may not travel with the token. But the good news comes with a chunk of salt, namely, that this is a decision on summary judgment, at the trial court level, in a matter involving a single token. The SEC may yet prevail at trial and the outcome may be different in a case involving a different token and different facts and circumstances.”
Jeffrey Alberts of Pryor Cashman, who is a Fintech-blockchain specialist, said the court has rejected the view that crypto tokens are securities as the Judge clarified that digital assets such as cryptocurrency tokens are not themselves securities.
“The court rejects the SEC’s position that people who bought XRP tokens speculatively as investments over digital asset exchanges were engaged in securities transactions, reasoning that these purchasers could not reasonably expect Ripple to act to increase the price of XRP. This is a huge blow to the SEC’s ability to regulate digital asset sales,” said Alberts. “The court’s ruling that sales of XRP on public exchanges were not securities transactions also is a huge blow to the SEC’s ability to regulate other entities in the cryptocurrency space, such as exchanges and other platforms that allow users to transmit cryptocurrencies.”
Alberts said the decision could alter how many crypto platforms do business, especially with U.S. users.
Former Special Trial Counsel within the SEC Enforcement Division, Arthur Jakoby of Herrick, Feinstein, labeled the decision a huge win for Ripple and the crypto-digital asset industry in general.
“The court’s precedent-setting decision that programmatic sales of XRP do not constitute the sale of securities, undercuts the SEC’s position that secondary sales of digital assets on exchanges such as Coinbase, and other digital asset platforms, constitute the sale of unregistered securities. If upheld on appeal, this decision significantly narrows the SEC’s jurisdiction over the crypto market.”
The court’s decision is a bit of a blow to the Commission under the leadership of Chair Gary Gensler, who has taken the position that all digital assets are securities and should be regulated as such. While the SEC may appeal, it will be interesting to see how this impacts the SEC’s pursuit of digital asset issuers.