Ripple Labs, a cryptocurrency company, claimed that its XRP coin is not a security subject to the Securities and Exchange Commission’s authority, thus invalidating an SEC lawsuit. The company reasoned that XRP is not a security because there is no investment contract providing investor rights or requiring the issuer to act in the best interests of the investors.
Ripple Claims its Investors Lack Rights
The American regulator’s case against Ripple is based on the claim that XRP is an unregistered security, which Ripple denies. In another chapter of the legal battle, the blockchain company filed a request in federal court in Manhattan to dismiss the case before trial.
Some XRP investors may be concerned that Ripple believes individuals who purchase the coin are deprived of the rights typically granted to investors. However, from a legal standpoint, the action may be effective.
The court action could have an impact on dozens of other digital coins and clarify the commission’s authority to regulate cryptocurrency assets.
XRP Promoter: Tokens Aren’t Securities Without Contracts
In a 2020 lawsuit, the SEC charged Ripple and its senior executives with deceiving XRP investors by failing to register the digital asset as security and failing to provide proper disclosure. Over the last two years, the parties have filed numerous discovery motions without ever debating whether or not Ripple violated the law by selling XRP.
— James K. Filan (@FilanLaw) September 12, 2022
Ripple asked the Federal Court in Manhattan to dismiss the case before it went to trial. The company claimed that XRP is not a security because there was no investment contract providing investor rights or requiring the issuer to act in the best interests of the investors.
According to Ripple’s weekend filing, the regulator is attempting to assert jurisdiction over any asset transfer that it believes may benefit from the securities laws’ registration and disclosure requirements. The SEC’s unrestricted position would transform the sale of any asset type, including diamonds, gold, soybeans, vehicles, and even works of art, into the sale of securities.
According to Ripple, Congress has not granted the agency such authority. The regulator also requested a decision in its favor without a trial, arguing that purchasing the currency constituted an investment in a joint venture with other XRP holders and that investors expected to profit from it.
According to the SEC, the defendants could not deny the content of their numerous public remarks about Ripple and XRP. The defendants can’t deny economic reality. Ripple’s business was funded by praising XRP’s profit potential, selling and distributing XRP to public investors while keeping a significant amount of XRP for itself.
My hot take – after two years of litigation, the SEC is unable to identify any contract for investment (that’s what the statute requires); and cannot satisfy a single prong of the Supreme Court’s Howey test. Everything else is just noise.
— Stuart Alderoty (@s_alderoty) September 17, 2022
Stu Alderoty, general counsel for Ripple, stated that the filings show that the SEC is acting outside its legal authority. Furthermore, he claimed that the SEC prefers to change the law rather than implement it because they believe it will allow them to expand their jurisdiction illegally.
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