1. Home
  2. Christian Larsen

Christian Larsen

Ripple vs. SEC: Could newly released documents tip the balance?

The court case between SEC and Ripple Labs has been ongoing for nearly two and a half years, but a summary judgment ruling could be made any day.

The ongoing case of the Securities and Exchange Commission v Ripple Labs could have a significant impact on the future of cryptocurrency regulations. 

Ripple first popped up in 2012 with the promise of providing financial institutions and other entities with faster, more affordable clearance of cross-border fund transfers. To that end, Ripple created the XRP Ledger and a cryptocurrency called XRP (XRP) to function as its native coin and facilitate transactions.

On Dec. 22, 2020, the SEC sued Ripple, alleging that the firm selling XRP represented an unregistered securities offering.

Ripple co-founder and former CEO Chris Larsen and current CEO Brad Garlinghouse were also named in the SEC’s charges.

Most entities on the receiving end of SEC enforcement actions choose to settle. In this case, however, Ripple chose to fight the charges — at great expense — and take the matter to court.

Ripple argued that XRP does not satisfy the Howey test, which is used to determine whether an investment contract exists  — and, therefore, whether a transaction is a security transaction. It also said that if XRP was, in fact, a security, the SEC had failed to give it fair notice under U.S. securities laws.

Enter the Hinman documents

The “Hinman documents” refer to a 2018 speech given by former SEC Director William Hinman and documents associated with writing it.

In the speech, Hinman said that Ether (ETH) should not be considered a security given its decentralized nature, stating:

“Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”

This was considered a landmark speech, as it signaled to the crypto industry that it could be possible for cryptocurrencies to transition from securities when they are first created to commodities once they are sufficiently decentralized.

This could have an impact on Ripple’s fair notice defense, which comes into play if Judge Analisa Torres finds that Ripple did indeed sell unregistered securities.

Ripple requested the documents in discovery, and the request was granted on Oct. 21, 2022. While the documents could be used as a part of Ripple’s defense, the SEC has attempted to keep them sealed on multiple occasions, arguing that they are irrelevant to the court’s summary judgment decision.

But on May 16, Judge Torres ruled that the Hinman documents are “judicial documents” subject to a strong presumption of public access and denied the SEC’s motion to seal.

Notably, the court did not state whether the documents will be relied upon when it decides on the summary judgment motions of each party; but given the statements of those who have seen the documents, it appears likely they will negatively affect the public image of the SEC.

Additionally, there are questions about whether Hinman had a conflict of interest when making the speech, as he worked at a law firm that is a member of an Ethereum advocacy organization before and after working for the SEC— and the documents may provide additional details around this.

Speaking during a Twitter Space shortly after the ruling, lawyer and CryptoLaw founder John Deaton predicted the documents will be:

“Disturbing, but not as shocking as maybe people think it’s going to be because there’s been, quite frankly, such a big buildup for it. [...] I believe when these emails come out, that the conflicts of interest will be even more highlighted.”

What does the latest ruling mean for the case?

While it’s still too early to tell what the ultimate outcome of the case will be, the court also denied certain motions to seal from Ripple, which included references linking Ripple’s revenues with XRP sales and the amount of compensation offered to trading platforms, among others.

In the Twitter Space, Deaton highlighted these sections as evidence likely to hurt Ripple’s chances of a complete victory, adding:

“I think the chances of Ripple getting a complete victory are much slimmer after reading this than I felt before. I still don’t think the SEC is getting a complete victory either.”

Deaton theorized that the courts could decide to fine Ripple for its early sales of XRP — relating to the initial coin offering and other transactions aimed at boosting the network — but that secondary sales of XRP and the coin itself are not securities.

Deaton’s thoughts on the subject were given further credibility when former SEC securities lawyer Marc Fagel added his voice to the Twitter Space, saying that he generally agreed with everything that had been said but that the SEC’s suit was worded in a way that focused on the tokens issued by Ripple and not secondary market transactions.

Fagel added that he thought Torres “would be overstepping to make a ruling on secondary sales,” but he believed they were helpful in the SEC’s case, as they illustrate how a secondary market would not have been created without Ripple issuing securities while promoting the network.

Could the case finally be reaching its conclusion?

In a May 17 Twitter thread, prominent pro-crypto lawyer Fred Rispoli suggested that the summary judgment ruling is already written and could be issued “any day now,” while also agreeing that a split decision was the most likely.

Deaton noted during the Twitter Space that he believes Judge Torres knows how she will rule but added that guessing how much is written “in its final form” would be pure speculation.

He also agreed that the decision could come down at any time, but he added that it could take another month or longer.

Magazine: NFT Creator: Top 10 crypto artist Trevor Jones on being rich, rekt and rich again

SEC Drops Robinhood Crypto Investigation

Blockchain Association throws support behind Ripple in SEC duel

The United States-based crypto industry advocacy group the Blockchain Association has said it will stand with Ripple Labs amid its ongoing legal battle with the Securities and Exchange Commission (SEC), claiming the case could be very important for the future of the industry.

United States-based crypto advocacy group Blockchain Association has come out in support of Ripple Labs amid its ongoing legal battle with the Securities and Exchange Commission (SEC), claiming the case could be very important for the future of the crypto industry. 

In an Oct. 28 post, the advocacy group announced it will "stand" with the American crypto economy by filing an amicus brief, also known as "friend of the court" in the SEC enforcement action against Ripple.

Nearly two years ago, the SEC announced they were suing Ripple (XRP), former CEO Christian Larsen, and current CEO Brad Garlinghouse in Dec. 2020 for allegedly raising $1.3 billion through unregistered securities sales through XRP.

"This case, which is just one in a long line of SEC efforts to regulate by enforcement, highlights the SEC's efforts to cement and legitimize its overly broad interpretation of the Howey test,” wrote the association.

The Howey Test determines what qualifies as an investment contract and is therefore what is subject to U.S. securities laws.

In their brief, the Blockchain Association outlined why in their view, the SEC and Chairman Gary Gensler's views of securities laws could have "devastating effects" on the crypto industry.

They argue blockchain technologies have many uses across the crypto industry; tokens can be used to pay for goods and services, conveyance of intellectual property rights, inventory tracking, and for a specific purpose in a given blockchain project.

"Applying the securities laws to those tokens – whether or not through the prism of the Howey test – would significantly restrict those networks from functioning."

The association also claimsSEC is disregarding clear Supreme Court and Second Circuit precedents stating transactions aboard are beyond the jurisdictional reach of the SEC.

"Though the blockchain industry is global in nature, the federal securities laws are not. The Second Circuit has repeatedly re-emphasized the Supreme Court's lesson on this subject."

"Accordingly, both for liability and (if necessary) damages purposes, this Court should be mindful of the limits of the securities laws," it added. 

Related: Ripple boss tips when SEC case will end as Hoskinson hits back at XRP army

Kristin Smith, executive director of the Blockchain Association, believes this case could have wide-reaching ramifications for the future of crypto, calling the SEC's interpretations of the securities laws, “the single greatest threat to the future of this rapidly growing industry."

"By erratically applying these outdated standards to a modern and innovative technology, the SEC continues its "regulation by enforcement" pattern, punishing crypto companies with little justification or warning,” she said.

The Blockchain Association said the case gives the industry the chance to push back against what they see as the "SEC's regulation by enforcement agenda" and potentially open the door to modernized standards for the industry."

SEC Drops Robinhood Crypto Investigation

Ripple Expects SEC Lawsuit Over XRP to Conclude Next Year, CEO Says ‘We’re Seeing Pretty Good Progress’

Ripple Expects SEC Lawsuit Over XRP to Conclude Next Year, CEO Says ‘We’re Seeing Pretty Good Progress’Ripple CEO Brad Garlinghouse says that he expects the lawsuit over XRP by the U.S. Securities and Exchange Commission (SEC) to come to a conclusion next year. The executive explained: “We’re seeing pretty good progress despite a slow-moving judicial process.” Ripple’s CEO Is Hopeful the SEC’s Lawsuit Over XRP Will Conclude Next Year Ripple CEO […]

SEC Drops Robinhood Crypto Investigation

Ripple Proposes ‘Real Approach to Cryptocurrency Regulation’

Ripple Proposes ‘Real Approach to Cryptocurrency Regulation’Ripple has published a proposal for a regulatory framework for cryptocurrencies called “A Real Approach to Cryptocurrency Regulation.” CEO Brad Garlinghouse explained that his company’s “proposed policy framework is a three-pronged approach of what can be done now,” noting that it is the result of Ripple’s “direct interactions with regulators and bipartisan policymakers.” Ripple’s ‘Real […]

SEC Drops Robinhood Crypto Investigation

Ripple Plans to Go Public After SEC Lawsuit Over XRP Is Resolved, CEO Says

Ripple Plans to Go Public After SEC Lawsuit Over XRP Is Resolved, CEO SaysRipple could go public after the SEC lawsuit is resolved, according to CEO Brad Garlinghouse. He reportedly explained that the likelihood of this happening is “very high at some point.” Ripple CEO Brad Garlinghouse was asked at the Consensus 2021 conference on Wednesday whether Ripple will become a public company. He replied that the likelihood […]

SEC Drops Robinhood Crypto Investigation

SEC Accuses Ripple of Harassment, Asks Judge to Block Access to Some Discovery Records

SEC Accuses Ripple of Harassment, Asks Judge to Block Access to Some Discovery RecordsThe U.S. Securities and Exchange Commission (SEC) has asked the judge in the SEC v. Ripple case to block Ripple and its executives from accessing various internal records it claims are unrelated to determining whether XRP is a security. The SEC says that the “defendants do not actually seek relevant evidence, but rather seek to […]

SEC Drops Robinhood Crypto Investigation

SEC vs. Ripple: US Judge Orders Both Parties from the XRP Lawsuit to Hold a Discovery Conference

SEC vs. Ripple: US Judge Orders Both Parties from the XRP Lawsuit to Hold a Discovery ConferenceIn a fresh twist to the Securities and Exchange Commission (SEC)’s fight against Ripple Labs, US judge Sarah Netburn has directed both parties to hold “a telephonic discovery conference on Tuesday, April 6, 2021.” The judge’s order directs the parties to discuss a motion to compel filed by Ripple’s lawyers. Motion to Compel On March […]

SEC Drops Robinhood Crypto Investigation