US-based blockchain company Ripple is likely to win the long war with the US Securities and Exchange Commission (SEC), say legal experts, arguing that the agency may have shot itself in the foot.
Some legal observers suggested that the agency completely failed to prove its case, according to a Forbes report. A major cause for its downfall could have been thousands of retail XRP holders who got involved in the case: though they were unable to be included as defendants along with Ripple, the judge allowed them to file amicus briefs, so that their voices would be heard as well.
Attorney Jeremy Hogan was quoted as saying that,
“The SEC can only prevail with its summary judgment motion if Judge [Analisa] Torres “forgets her first year of law school”.”
Furthermore, well-known legal experts, namely Curt Levey of the Federalist Society and Professor J.W. Verret of George Mason University’s Scalia School of Law, argue that,
“Ripple is on track to win this case.”
And that’s not all. Verret said that, should the SEC decide to appeal to the Supreme Court,
“It is likely to not only lose but set a sweeping precedent that would limit or eliminate entirely the application of Howey on cryptocurrencies, which defy the definitions of 1946.”
The Howey Test refers to the US Supreme Court case for determining whether a transaction qualifies as an ‘investment contract’, and therefore a security.
According to Forbes,
“The verdict could drastically limit the SEC’s authority to regulate crypto in the United States. If that’s how it ends, it will have been a self-inflicted disaster from the start.”
The SEC filed this lawsuit against Ripple and its senior executives back in December 2020, alleging that Ripple-associated XRP is an unregistered security. It suggested that it has been a security since 2013, and that sales of billions of XRP on the secondary market for seven years leading up to the lawsuit were securities as well.
Yet, as Forbes reported, 75,000 XRP holders led by attorney John Deaton got involved in the case and more than 3,000 of them provided affidavits to Ripple’s defense team stating that “they had never heard of the company they were allegedly investing in before the SEC filed the lawsuit.”
Noting that, unlike Ripple, the SEC “has had no allies,” the report also said that other XRP users with no connection to Ripple filed amicus briefs, as did the Digital Chamber of Commerce and the Blockchain Association.
Crucially, Ripple also went after the Hinman documents and fought hard to get them – finally receiving them from the SEC just recently, at the beginning of this month. These are relevant as former Director of Corporation Finance William Hinman famously said in a 2018 speech that ethereum (ETH) is not a security. Therefore, the internal SEC emails and drafts behind that speech became highly relevant for Ripple’s case.
The SEC, said Forbes, is driving “this bus off a cliff,” the reason being that they are litigators, but also that the SEC chair Gary Gensler is “ultimately a political figure.” Per attorney John Deaton, Gensler cannot win this case, but he needs a victory over such a big firm in the industry, which would “prove” that he was right, adding:
“What does the politician do? He takes the guaranteed political win.”
Meanwhile, Ripple’s general counsel Stuart Alderoty said that the case would be settled quickly if the SEC would clearly state that XRP is not a security.
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