The dispute over whether XRP is a security might go until 2023. However, the corporation and cryptocurrency supporters are becoming more bullish.
It’s been more than a year since the SEC shocked the technology world by suing Ripple, launching what has become the most keenly followed court fight in cryptocurrency.
The lawsuit, in which the SEC accused the crypto powerhouse of breaking securities laws, has devolved into a lengthy war, with the future of crypto regulation possibly on the line.
After Ripple and the SEC agreed on a timeline for the next phase of the case, filings and hearings on applications for summary judgement will be extended until December. At that point, either a federal court will rule on the lawsuit or it will go to trial.
“It now seems that a resolution will arrive in 2023,” Ripple general counsel Stuart Alderoty tweeted.
Is justice being delayed?
The dispute, which started in December 2020, revolves on the SEC’s claim that Ripple failed to register around $1.4 billion in XRP as securities.
The result of the case might have far-reaching consequences for cryptocurrency. If the SEC wins, it might change the way crypto firms operate by establishing a precedent that the digital assets they provide customers must be subject to the same onerous reporting and registration requirements as securities.
If Ripple prevails, it would be a significant triumph for cryptocurrency at a time when the sector is expanding fast but also under more regulatory scrutiny on numerous fronts.
Ripple has been frustrated by the lengthy court fight, accusing the SEC of legal intimidation and delaying tactics. Ripple, according to Alderoty, had little option but to agree to the extended timeline.
“To those who are wondering whether this is a joint filing, the answer is yes,” he stated. “However, based on the SEC’s track record, the next iteration would have very likely been considerably longer if we hadn’t agreed to this.”
“When firms defend themselves from SEC bullying investigations / inquiries, Chair Gensler preaches ‘justice delayed is justice denied,'” he added, referring to SEC Chairman Gary Gensler’s November 2021 speech, in which he promised that the agency will “focus on bringing matters to resolution swiftly.”
The Ripple case, on the other hand, is “quite a difference from the SEC utilizing every trick at their disposal to maintain this fog of doubt over the market,” he added. “Justice has truly been delayed.”
According to Protocol, the SEC “does not comment beyond public filings.”
The crypto-moment
The conflict has occurred at a pivotal juncture in the history of cryptocurrency. Since the SEC sued in 2020, the sector has seen major changes, ranging from fast expansion and the introduction of new companies and asset types such as NFTs to increased regulatory and political scrutiny of crypto in important regions like as the United States, Europe, China, and the United Kingdom.
According to Alderoty, the Ripple action “is an indictment of the SEC’s regulation-by-enforcement strategy.”
CEO Brad Garlinghouse said that authorities such as the SEC are preventing the United States from reaping the benefits of cryptocurrency. “The SEC is perfectly prepared to let the US to fall farther behind — all in the name of safeguarding its own jurisdiction at the cost of US people,” he tweeted.
For crypto doubters and detractors, including Senator Elizabeth Warren and a slew of legal and financial professionals, the Ripple litigation is about taming a rapidly expanding movement that threatens to undercut rules designed to safeguard investors and the financial system.
The phenomenal expansion of cryptocurrency over the last two years has prompted a strong drive for more transparency and accountability from firms that provide a growing range of digital assets and services, amidst escalating worries of instability that might lead to a financial meltdown.
According to the SEC, XRP is effectively a “illegal securities offering,” and Ripple failed to give “the sort of financial and management information” needed by law. According to the agency, Garlinghouse, who was named in the action with co-founder Chris Larsen, has said “repeatedly that he was ‘very long’ XRP, meaning he owned a big stake he anticipated to gain in value, without reporting his XRP sales.”
Ripple essentially “took people’s fiat currency, handed people something called XRP, and said the value of your XRP will go up or down depending on whether we’re successful at building out the use case for XRP,” according to Stephen Diamond, a veteran Silicon Valley lawyer and law professor at Santa Clara University.
He said that distributed ledger technology, the foundation of crypto, is “a con game being performed by crypto to dodge regulation by the SEC and others.”
However, Ripple has continually denied the SEC’s argument concerning XRP, which it claims is a utility token for payments rather than a speculative asset; that it was released prior to Ripple’s inception; and that Ripple has never offered XRP as an investment. (It does sell XRP to consumers in order to offer “on-demand liquidity.”)
“There was never an investment contract,” Alderoty said. “Owning a unit of XRP confers no right, title, or interest in Ripple, nor does it entitle you to any division of earnings from Ripple.”
The case, filed late in former SEC Chair Jay Clayton’s tenure, had a disastrous impact on Ripple, sending XRP’s market value plunging in December 2020. The legal action, according to Alderoty, was a “rug pull by the SEC” that wiped away $15 billion in XRP currency value “the day the litigation was filed, harming the same individuals the SEC pretends to protect.”
Gensler’s influence
The complaint also drew attention to Gary Gensler, who took head the agency four months after it was filed.
The crypto sector, including Ripple, originally welcomed Gensler. “I believe having someone like Gary Gensler in office is exciting since he taught blockchain and technology at MIT,” Alderoty told Protocol last year.
That mindset soon shifted. Gensler delivered a clear indication that he, too, would be forceful in his approach to cryptocurrency. On Twitter, Alderoty now constantly criticizes Gensler, accusing him and the SEC of adopting “every method to generate market uncertainty.”
In his November address, Gensler retorted, without naming any specific firm or executive: “Some market players may call this ‘regulation by enforcement.'” “I just refer to it as ‘enforcement.'”
The path of Ripple
XRP has recovered from the December 2020 meltdown, albeit the currency has fluctuated dramatically as the crypto market enters another phase of extreme volatility.
Ripple also claims that the SEC case has not hampered its foreign expansion, where its cross-border payments system has continued to gain traction. “Our company has been booming outside of the United States,” Alderoty said.
Indeed, the business revealed in January that it will be repurchasing shares from a $200 million series C financing in 2019. “Despite these huge headwinds,” Garlinghouse added, company was doing well.
However, Ripple has increased its pressure on the SEC, criticizing the agency’s decision to suit. Perhaps Ripple’s most persuasive line of argument is centered on former SEC director William Hinman’s 2018 statement in which he said that ether is not a security. His remarks caused a surge in the price of ether and looked to support the crypto industry’s perspective.
When the SEC sued Ripple, Hinman was still a member of Clayton’s SEC leadership. (He and Clayton will leave at the end of 2020.)
Ripple has sought that the SEC provide correspondence connected to the internal discussion of the speech. A federal court last month reiterated the SEC’s need to provide the emails, giving the business a win.
In what looked to be yet another setback for the SEC, a nonprofit whistleblower organization called Empower Oversight recently revealed SEC emails revealing conflicts of interest in Hinman’s capacity as an SEC director.
According to the emails, Hinman worked for a legal firm that was a member of the Enterprise Ethereum Alliance, which is committed to promoting the business usage of Ethereum. Because Ether is considered an XRP rival, Hinman’s participation in voting to sue Ripple was immediately called into doubt.
According to Alderoty, the Hinman emails demonstrated that the SEC had a “control failure.” “How could it have happened?” he wondered. “It simply seems like a fundamental issue that the SEC should be addressing itself.” There was a planned breakdown, and why isn’t the SEC taking it seriously?”
Hinman, who is now a senior consultant at Simpson Thacher and an advising partner on a16Z’s crypto team, could not be contacted for comment.
It’s unclear what influence Hinman’s troubles would have on the case. Judge Sarah Netburn of the United States District Court for the Southern District of New York might deliver a final ruling based on both parties’ submissions, or she could rule that the matter should be tried by jury. That means the case might drag on much longer.
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In any case, both sides have a lot riding on this.
“What we’ve maintained from the start is that Ripple is fighting this case not just on its own behalf, but on behalf of the whole crypto sector,” Alderoty added.
In his address, Gensler said that he would not back down as he leads the SEC to “pursue misbehavior wherever we find it,” which includes cryptocurrency.
“In my first six months here, I’ve discovered that there are far too many fraudsters, penny stock scammers, Ponzi scheme builders, and pump-and-dump scams preying on investors,” he stated. “We must safeguard the general people from as many of these frauds as possible.”