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Stoyan Todorov April 19, 2021 4 min read
Ripple Wins First Round against SEC, Outcome Still Uncertain
Uncertainty prevails in the SEC v. Ripple Las lawsuit even though Ripple has won a monumental first-round victory by obtaining access to the regulator’s internal communication.
Ripple Prepares for Next Round of SEC Legal Saga
When the United States Securities and Exchange Commission (SEC) went after Ripple Labs, it all seemed but lost for the issuer of $XRP. However, a monumental change in legal fortunes has put Ripple in a better position. Fighting off a lawsuit dating back to December, Ripple has managed to secure some wins against one of the most feared regulators in the United States.
Partly because of this recent success, $XRP’s value has grown by 532% in the past 12 months, even though many consumers decided to jump ship earlier this year, for far the SEC lawsuit could have had a lasting impact. None of this has transpired, and as Forbes echoes, “the SEC is now on trial – and knows it.”
Yet, it’s important to understand that $XRP’s price may not entirely reflect the current legal developments surrounding Ripple Labs but rather a positive trend in the cryptocurrency market as a whole.
The lawsuit is important not just for Ripple, and it’s important for the entire crypto community. As Murphy & McGonigle partner Daniel Payne said for Cointelegraph, the lawsuit could potentially add clarity in a number of areas, including but not limited to:
“The application of the statute of limitations to token sales; the extraterritorial reach of the securities laws to token sales on worldwide blockchains; the application of the securities laws to digital assets that FinCEN has regulated as a virtual currency [e.g., BTC]; and whether courts will use Bitcoin and Ether as models of non-security digital assets in their legal analysis.”
How Long Before Ripple Wins?
Ripple’s recent success has been attributed to the company’s legal arguments that allowed it to access internal SEC memos, which better detail what the regulator is up to and will thus allow the company’s legal advisors to prepare their defense tailored to SEC’s strategy. Ripple has effectively been able to convince a court that the lawsuit which stipulates that Ripple Labs “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.”
Many speculated that the Ripple executives cited in the case, to name co-founder and chairman of the board Christian Larsen and CEO Bradley Garlinghouse, would leave the country, but the executives have signaled nothing but confidence in the matter, staying by their company and willing to address SEC’s legal challenge head-on.
Is XRP a Security or Not?
In its case against Ripple Labs, SEC argues that $XRP is a security. Should Ripple argue successfully that it isn’t, the regulator will lose its foothold and effectively bring its legal challenge to a grinding hall. To this end, SEC is using a number of district court rulings that have ascribed digital assets status of securities, referring to ATBCoin, Telegram, and others.
Now, the difficult part in Ripple’s case comes from the way Ripple Labs and the $XRP currency have evolved, each in their somewhat different direction, according to Payne, who provided more commentary for Cointelegraph.
While some parallels can be drawn between other digital assets and Ripple, it’s important to understand that “$XRP was first sold eight years ago, and over that time, the XRP ledger has become decentralized.”
On the other hand, Ripple has decoupled from the $XRP currency. The outcome of the lawsuit will set the board for other companies who are looking to raise capital through token offerings. To have a level playfield is in everyone’s best interest and not least Ripple’s, SEC’s, and of course the new projects that are now reluctant to make a move for fear that over-bearing regulation can throw a spanner in the works.
Ripple Labs has definitely succeeded in defending its position, but the rub is that once SEC decides to move into an issue, the regulator is unwilling to let go until the matter is settled. The crypto market will feel the outcome of the SEC v. Ripple Labs case, and that is a fact.