In The Ripple Case, The SEC Is Now On Trial – And Knows It

Ethereum was created in 2014; however, some regulators believe that its token is in a ‘grey zone,’ and that it was probably created in an ‘illegal securities sale.’ According to the SEC, it has said in the past that it views cryptocurrencies as securities and that companies offering these tokens must register with the agency.

Here is the video link https://twitter.com/TAIGxrp/status/1457350721268064258

Gary Gensler Ethereum was a securities offering
Gary Gensler Ethereum was a securities offering
Gary Gensler Ethereum was a securities offering
Gary Gensler Ethereum was a securities offering

In The Ripple Case, The SEC Is Now On Trial – And Knows It

Some agency chairs find an ambiguous statute hard to resist. They overinterpret their authority to regulate, and Congress too often goes along. The backstop of this excess is the courts, provided that the aggrieved have the wherewithal to defend themselves against the gargantuan administrative state. This familiar story is playing out in the U.S. Securities and Exchange Commission’s (SEC) lawsuit against cryptocurrency innovator Ripple, but the buck stops with Magistrate Judge Sarah Netburn whose discovery hearing in U.S. District Court for the Southern District of New York on Tuesday exposed the SEC’s unfounded and flawed arguments and some inconvenient truths for former SEC Chair Jay Clayton and former SEC Corporation Finance Division head William Hinman.  

The hearing showed that the case against the San Francisco fintech startup was based on an illogical premise. It alleged that XRP, the digital currency that Ripple uses for cross-border payments, has been an unregistered security since 2013 and that the SEC was just getting around to saying so on the last day of Clayton’s tenure last December. With this late in the game regulatory determination, the SEC now deems that every Ripple sale for seven years was an

illegal securities trade. And that Ripple, its two top executives named in the suit, along with millions of retail holders, should have known this all along, even though the agency never did. Due process and fair notice were thrown out the window to get the case across the transom on the day that Clayton walked out the door.

The hearing detailed the many vague, contradictory statements regulators made on cryptocurrency over the years. In 2018 Clayton told CNBC that bitcoin is not a security, and Hinman gave a widely covered speech which laid out how ether was not a security, despite debuting in an initial coin offering (ICO) in 2014. With XRP they said its status had “not been determined.” Trading platforms asked the SEC if XRP was security before listing the token, and the agency refused to clarify. When asked whether XRP was a security, the then-chairman of the Commodity Futures Trading Commission Heath Tarbert in a 2020 interview declared, “It’s unclear. Stay tuned. We’re working closely with the SEC to figure out what falls into what box.”

If these regulators were honest, they would admit that nothing in the 1933 Securities Act refers to cryptocurrency and then would request Congress to clarify the statue. Instead, the SEC made an unfounded determination with no warning or process.

Back to Judge Netburn’s courtroom. Ripple requested the internal documentation to explain how and why the SEC arrived at their pronouncements as well as silence on these various coins. The SEC responded that nothing said by Clayton, Hinman, or any SEC official about bitcoin or ether was an “official determination” on whether they are securities. It appears that Netburn is not buying the SEC’s argument that their many statements were not material. In a March 22 hearing, she told the SEC her understanding of XRP:  “. . . not only does it have a currency value but it has a utility, and that utility distinguishes it from bitcoin and ether.” This rejects the SEC’s story that XRP has never had utility.