The US Securities and Exchange Commission is gearing up for a major legal battle against Ripple. The case, which will establish a critical precedent, is set to take place just THREE DAYS BEFORE Christmas 2020.
Ripple, a company based in San Francisco that provides the infrastructure for cross-border payments, is being charged with conducting a $1.3 billion unregistered securities offering by selling a cryptocurrency, XRP.
The same day, Ripple announced it would “fight.”
The crypto sector is on pins and needles awaiting a verdict from Judge Analisa Torres of the Southern District of New York. After more than two years of protracted legal conflict, all of the evidence has been heard, and there remains nothing left but for the judge to issue a ruling.
The verdict will reverberate throughout the crypto sector, and those with a stake in the outcome have been attempting to divine when a judgment might land, based on the judge’s past ruling patterns. Some believe a resolution is only days away.
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In bringing the charges, the SEC has staked a claim to jurisdiction over cryptocurrency. At the center of the suit is the question over whether XRP, the crypto token on which Ripple’s services are based, should be classified as a security—a tradable financial instrument like a bond or derivative—or something else entirely. If the court rules that XRP is a security, it would follow that almost all other crypto tokens are too, making them subject to the SEC’s supervision. This would have a massive impact on the cryptocurrency market, which is still in its infancy.
The future of crypto businesses in the US may be in jeopardy, according to defense lawyer John Deaton, who supplied expert testimony on the case on behalf of holders of XRP. Deaton believes that, without legislation that makes clear the classification of crypto assets, the question of whether they should be treated as securities will have to be assessed on a case-by-case basis through the application of the Howey test. Under the test, an investment contract (in this context, a security) is defined as “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”
When the SEC charged Ripple and its executives, it declared that XRP met these criteria and that, by selling XRP to the public, the company was in violation of federal securities law. Although Ripple is not the issuer of XRP, some of its executives were part of the group that developed the token. The firm had also received a donation of 80 billion XRP in the early 2010s (worth around $30 billion at present) to develop use cases—something the SEC has now deemed a security sale.