The legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC) over XRP’s status as a security is ongoing. While there is yet to be a judgment on the matter by the US District Court for the Southern District of New York, a recent submission by the SEC’s staff has led to some interesting developments in the case.
Attorney Questions XRP’s Classification As A Security
In Ripple’s opposition and reply briefs submitted to the court, Attorney John Deaton, representing XRP holders, has highlighted a footnote suggesting that there are “reasonable grounds” to conclude XRP may not satisfy all elements of the Howey Analysis, the legal test used to determine whether an asset is a security. This conclusion could imply that XRP is not a security under federal securities law.
The Howey Analysis consists of four criteria:
- an investment of money,
- in a common enterprise,
- with a reasonable expectation of profits,
- solely from the efforts of others.
The SEC claims that XRP meets all four criteria. If XRP is deemed a security, Ripple may have to face significant fines and penalties for not registering with the SEC. Moreover, it could lead to increased regulatory scrutiny and compliance requirements for other cryptocurrencies that may be considered securities.
However, if the court determines that XRP does not meet all elements of the Howey Analysis and is not a security, it could have significant implications for the cryptocurrency industry.
Ripple’s CLO Cites SEC’s 1976 Ruling As Legal Defense
Stuart Alderoty, Chief Legal Officer at Ripple, recently pointed out that the SEC’s 1976 ruling stated that art lithographs, even sold for investment purposes, are not securities if there are no post-sale contractual obligations from the seller in favor of the buyer. The Andy Warhol lithograph in question, entitled “Prince Series,” was sold to a collector named Richard Weisman. This ruling could further clarify the regulatory status of XRP and similar assets.
It is crucial to understand the legal classification of different types of assets in the context of investment and securities law. The outcome of the Ripple lawsuit will have significant implications for the cryptocurrency industry.
Featured image from Unsplash, chart from TradingView.com
