Jeremy Hogan, a lawyer supporting XRP, has addressed the issue of secondary market sales and its potential impact on the lawsuit of Ripple versus the US Securities and Exchange Commission (SEC). XRP holders are closely monitoring the case as it will determine if the asset is inherently a security. Failure to address the secondary market sales issue could adversely affect the relisting of XRP on exchanges such as Coinbase.

According to the SEC lawsuit, XRP is a security similar to a share of stock. However, the SEC does not explicitly ask the court to grant the asset the status of security. This leaves the secondary market sales question unresolved.

Disgorgement Order Could Resolve SEC vs. Ripple Secondary Sales Issue

The SEC has accused Ripple of selling XRP as an unregistered security in violation of securities laws. If proven, Ripple may have to pay disgorgement, giving up profits earned through illegal or unethical means.

Hogan suggests that Ripple could convince the SEC to include language in its final decision that the ruling does not cover secondary sales. Hogan argues that the court must decide who receives funds paid through the disgorgement order. Disgorgement requires a defendant to give up profits earned through illegal or unethical activities.

Ripple could propose that only direct purchasers receive their investment in the disgorgement order, not secondary market purchasers. This argument bases on the SEC v. Wang case, in which the court ruled that disgorgement should only be paid to those who purchased the security from the defendant.

If the court agrees with Ripple’s recommendation, it would imply that only those who bought XRP from Ripple directly should get their investment back, excluding secondary market buyers such as exchange purchasers. This would limit Ripple’s financial impact and clarify XRP’s legal status, indicating that XRP is not inherently a security.

SEC’s Admission on Token Status in LBRY Case Might Benefit XRP

The SEC Vs. Ripple lawsuit hearing highlights a recurring topic on whether a crypto asset that allows a holder to send instructions to a network can constitute an investment scheme by a company. During the Library (LBRY) blockchain-based file-payment network versus SEC litigation, the SEC wanted the judge to issue a broad injunction against the sale of the LBRY token, in which the token becomes a security.

Deaton, an Amicus Curiae in the XRP lawsuit, submitted an amicus brief in the LBRY matter, and the SEC lawyer in the LBRY litigation conceded that secondary market sales of LBC tokens do not constitute a security. The judge ruled that the secondary market transactions of LBRY tokens by unaffiliated individuals with no investment intent in the LBRY case are legal.

The LBRY case sets a precedent that could benefit Ripple and XRP holders, indicating that secondary market transactions do not constitute securities, and Ripple may not inherently be a security.

Featured image from iStock and chart from TradingView.com.