September 21, 2021, | AtoZ Markets–The legal battle between the SEC and Ripple continues. This story continues to have new episodes, and all investors remain on alert.
A legal battle involving the Securities and Exchange Commission and Ripple could show just how much authority the SEC has over the regulation of the $2.2 trillion-plus cryptocurrency market.
This legal battle between Ripple and the SEC began in December 2020 when the SEC filed a lawsuit alleging that Ripple Labs, a global payments platform, had violated securities laws by failing to register its XRP cryptocurrency as a security. The move was one of the last made by then SEC Chairman Jay Clayton before he left office.
At the time, Ripple was using XRP as a vehicle to fund its core business of seamless cross-border transactions for financial institutions, and it also charged the SEC.
SEC Wants Stricter Crypto Laws
The lawsuit took Ripple by surprise, but it marked a new round of regulatory discussions about whether cryptocurrencies should be considered securities, commodities, or something else.
If cryptocurrencies are securities, as defined by court precedent, they must be approved and regulated by the SEC, which requires various disclosures from the company.
Ripple believes that XRP is not, so it does not need SEC approval. Furthermore, he says that the SEC currently allows other cryptocurrencies such as Bitcoin and Ethereum to be traded as commodities, and the blockchain networks of these cryptocurrencies are not required to be registered.
On the other hand, the SEC argues that Ripple is different because XRP was actively used to fund Ripple’s business. It also says that it essentially represents an investment in the company itself. Thus it constitutes security, not a commodity, and falls under the SEC’s regulatory purview under court precedent known as the Howey Test.
Ripple Fights SEC Lawsuit with All Its Might
The lawsuit, which is currently going through the courts, has proven detrimental to Ripple’s business, causing XRP to be delisted from more than 50 exchanges and to plunge in value.
Ripple says its domestic business has essentially stalled, and it now relies on its foreign market for much of its revenue. Despite the trade problems, Ripple refuses to back down. People close to the tech company say Ripple has no plans to settle with the SEC.
The Battle Between Ripple and the SEC Continues
In recent weeks, Ripple has secured several victories in the legal case. Among them, a ruling by the trial judge allowing the crypto company to ask Hinman to testify in court as to the criteria it applied in qualifying that ETH was not a security. At the time, the SEC argued that Hinman was speaking for himself and not on behalf of the agency.
However, and despite Ripple’s several victories, the Commission continues to make arguments against the company and each development in its favor is relatively small in a much larger case where the outcome remains uncertain.
What Is Known As Security in Financial Terms?
The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest, or participation in any profit-sharing agreement. Also, any collateral-trust certificate, preorganization certificate or subscription, transferable share, SEC said.
The U.S. Supreme Court has defined “profits” as “either capital appreciation resulting from the development of the initial investment . . . or a participation in earnings resulting from the use of investors’ funds.” The promised return may be fixed or variable and may be marketed as low-risk or “guaranteed.”
The truth of this story is that there is still a long way to go to see what happens …