Unchained

New Order in SEC vs. Ripple Over XRP Is a Win for Crypto: What Happens Now?

Fri Jul 14 2023

SEC LawsuitRipple LabsXRPInvestment ContractsProgrammatic SalesICO CasesLegislationCrypto NewsLegal ActionsRegulatory Challenges

Description

The SEC lawsuit against Ripple Labs and its executives, the judge's ruling on XRP and Ripple, comparison to other ICO cases, implications and future considerations, other crypto news, and key insights.

Insights

SEC Lawsuit and Judge's Ruling

The SEC lawsuit against Ripple Labs challenges the industry's understanding of digital asset distribution, while the judge's ruling distinguishes between investment contract transactions and non-contract transactions.

Programmatic Sales and Secondary Market Transactions

The judge's ruling on Ripple's programmatic sales highlights their classification as secondary market transactions, differentiating them from institutional sales and other ICO cases.

Caution and Future Considerations

While the ruling provides some clarity, caution is still advised as an appeal is likely and factual matters will be addressed in trial. Legislation is needed to address information asymmetries and market structure.

Other Crypto News

Legal actions against Celsius, backlash against ARCOM Intelligence Exchange, and regulatory challenges faced by FTX, Tether, Circle, Coinbase, Gemini, Prometheum, Binance US, and more.

Ongoing Legal and Regulatory Developments

The episode highlights the ongoing legal and regulatory developments in the crypto industry and the need for continued engagement and advocacy.

Summary

Transcript

SEC Lawsuit Against Ripple

00:00 - 07:36

SEC sued Ripple Labs and two executives for an unregistered securities offering
SEC's concern about digital asset distribution predates Ripple case
Ripple case seen as a way for SEC to assert control over the industry
Judge's order focused on institutional distributions and programmatic sales of XRP tokens
Judge distinguished between investment contract transactions and non-contract transactions
Judge rejected SEC's position that all digital assets are securities
Amicus briefs were filed in the case, including one by Paradigm
Judge analyzed institutional sales as unregistered securities offerings
Programmatic sales did not meet the standard for being considered securities

Judge's Ruling on XRP and Ripple

07:14 - 14:53

The judge rejects the position that XRP and Ripple are one and the same
The institutional sales were considered investment contract cases
There was an investment of money provided directly to Ripple Labs
There was a common enterprise with an expectation of profit for institutional buyers
The judge's concern is not the subject of the investment contract, but the reasonable understandings of participants
Programmatic sales were different from institutional sales in terms of who invested their money in Ripple
Programmatic buyers stood in the same shoes as secondary market purchasers
Functionally, programmatic sales were considered secondary market transactions rather than securities transactions
The judge rejects the idea that a token can start off as a security and later stop being one based on extrinsic events or centralization
What matters is whether there was a scheme among participants, regardless of the digital token involved
The judge disagrees with the SEC's argument that programmatic buyers participated in a big scheme without evidence of understanding statements made by Ripple executives as undertakings
Sales between two third parties are not seen as problematic by the judge

Comparison to Other ICO Cases

14:30 - 21:53

Ripple's case challenges the notion that decentralized protocols with tokens are less subject to action from the SEC.
The kick and telegram cases serve as examples of prosecuted ICO cases.
The judge in the kick case ruled that it was an unsurprising decision due to its alignment with public interest and potential profits.
In the telegram case, the judge focused on the initial buyers of tokens and their role in distributing them, ultimately ruling that they were part of one big scheme by telegram.
Judge Torres emphasized that Ripple's programmatic sales involved secondary market transactions, which differed from the kick and telegram cases.
If Judge Torres' reasoning holds up, it could impact how projects distribute tokens through methods like airdrops or exchange offerings.
While this federal court decision validates that tokens themselves are not securities, caution is still necessary due to potential fraud areas in crypto markets.
There is a high likelihood of an appeal by the SEC, which could take considerable time before a circuit court decision provides strong binding precedent.

Implications and Future Considerations

28:04 - 35:23

The SEC's case against Ripple in the Southern District of New York will likely take a long time to resolve, possibly years.
Judge Torres's decision could be overturned or remanded by the second circuit court.
The judge rejected many of the SEC's broad claims, but caution is still advised.
The order is encouraging for crypto exchanges like Coinbase, as it validates their position regarding XRP tokens.
Delisted exchanges may reconsider relisting XRP, but different exchanges may have different views on this matter.
The XRP order may have a minor influence on the likelihood of a spot Bitcoin ETF being approved by the SEC.
An appeal will likely occur, and there will be a trial to address factual matters raised by the judge.
There were factual questions that had to be considered in the case.
The parties could not agree on certain issues regarding Garlinghouse and Larson.
The trial will address questions about their state of mind and whether Larson consciously assisted Ripple.
These specific questions are relatively smaller scale and do not affect the wider crypto industry.
The order provides some clarity for the crypto industry regarding the status of crypto assets as securities or commodities.
The rejection of the embodiment theory is a positive development as it does not align with the law.
It's important to remember that the SEC has genuine concerns and aims to protect regular folks.
Information asymmetries and market structure are two key issues that still need to be addressed in legislation.
Legislation can help address information asymmetries and ensure market participants have access to important information.
A federal regulatory scheme for secondary markets would be beneficial to prevent market manipulation and other issues.
While this decision is a step forward, more work needs to be done on the legislative front.
Engaging with representatives and senators is encouraged to advocate for sensible legislation in the crypto space.

Other Crypto News

34:53 - 42:42

The DOJ has accused Myshinsky and other Celsius officials of orchestrating a scheme to inflate the price of Celsius's proprietary token, Cell, and misrepresenting the company as a modern-day bank.
The SEC alleges that Celsius and Myshinsky misrepresented the company's business model and risks to investors.
The CFTC claims that Celsius engaged in a scheme to defraud customers by misrepresenting the safety and profitability of its digital asset-based platform.
The FTC has reached a settlement with Celsius, banning the firm from handling consumers' assets and blocking it from offering any product or service related to assets.
ARCOM Intelligence Exchange has faced backlash for allowing users to trade information about crypto wallet owners.
Arkham CEO Miguel Morrill defends the initiative, stating that complete anonymity is not fundamental in cryptocurrency and that on-chain analysis already occurs.
FTX initiated a refund process for creditors via a claims portal after recovering over $7 billion. Former FTX executive Ryan Salem is under investigation for potential campaign finance violations unrelated to FTX's collapse.
FTX seeks to reclaim $323 million from executives of FTX Europe, accusing them of using misappropriated funds for an acquisition without due diligence.
Multi-chain protocol experienced unauthorized outflows raising suspicions of an internal rug pull. Stablecoin issuers Tether and Circle immobilized over $65 million linked to hacker addresses.
The SEC counters Coinbase's motion to dismiss their lawsuit, claiming Coinbase was aware securities laws could apply to its business. Judge Catherine Polka-Fila expressed skepticism about the SEC's stance during the hearing between Coinbase and the SEC.
Digital Currency Group (DCG) calls Gemini's lawsuit a publicity stunt orchestrated by Cameron Winklevoss
Gemini accuses DCG and CEO Barry Silbert of fraud against creditors
DCG states that Gemini's leadership was not involved in recent meetings
Gemini seeks to recoup over $1.12 billion from DCG's subsidiary Genesis
Senator Tommy Tuberville and other lawmakers call for an investigation into Prometheum
Prometheum accused of providing false testimony to Congress and having questionable ties with a Chinese firm
Blockchain Association requests SEC internal investigation into Prometheum's license approval
US government moves $300 million worth of Bitcoin linked to Silk Road Marketplace
Binance US faces concerns over its Bitcoin cash reserves but assures customers of one-to-one reserve ratio
FTX and Taylor Swift rumored to have had a failed partnership

Summary and Insights

00:00 - 00:00

The SEC lawsuit against Ripple Labs and its executives has significant implications for the crypto industry.
The judge's ruling distinguishes between investment contract transactions and non-contract transactions, rejecting the SEC's position that all digital assets are securities.
The ruling also emphasizes the importance of understanding participants' reasonable understandings in determining whether a scheme exists.
The comparison to other ICO cases highlights the unique aspects of Ripple's programmatic sales and their classification as secondary market transactions.
While the ruling provides some clarity, caution is still advised as an appeal is likely and factual matters will be addressed in trial.
The case raises important considerations for legislation, including addressing information asymmetries and market structure.
Other crypto news includes legal actions against Celsius, backlash against ARCOM Intelligence Exchange, and regulatory challenges faced by FTX, Tether, Circle, Coinbase, Gemini, Prometheum, Binance US, and more.
Overall, the episode highlights the ongoing legal and regulatory developments in the crypto industry and the need for continued engagement and advocacy.