The Securities and Exchange Commission, also known as the SEC, has been in a serious legal brawl with Ripple, a globally influential cryptocurrency company. On December 22, 2020, the SEC put forward one of its biggest litigations to date against the company.
Ripple is responsible for distributing a large share of XRP. The regulatory body claimed that Ripple Labs Inc breached the Federal Securities Act of 1933 by not registering XRP coins worth over $600 million.
The legal brawl between Ripple and the SEC has generated many concerns around what the Federal Commission considers a "security" and how other virtual currencies fit the category. The supervisory body claims that it considers the XRP a "security" since the coin is generated, distributed, and exchanged centralized by Ripple. However, the SEC considers coins like Ethereum and Bitcoin "commodities" because they are mined decentralized. As a result, no central entity has the power to affect the distribution and development of both currencies drastically.
Christian Larsen, Founder and ex-executive director of Ripples, and Bradley Garlinghouse, the present CEO, were accused of conducting illegal sales of XRP coins worth $1.3 billion between 2013 and 2020.
The Commission alleged both CEOs funded the blockchain firm by selling these unregistered securities to investors in the US and around the world. The altercation is centered around whether or not the supervisory body considers Ripple's XRP a "security."
As stated by the US Securities Act of 1933 , the act states that security is an investment of money in a common enterprise with reasonable expectations of profits derived from the efforts of others. Together with previous accusations, the supervisory body claims Ripple traded XRP for other non-monetary benefits like marketing and labor.
On January 29, 2021, Ripple published its first response to the SEC suit by producing a document detailing its stance on the case. In it, they provided answers to clarify the misconceptions surrounding the issue. This clap-back showed that the company was not willing to back down; rightfully so. Ripple Labs argued that between 2015 and 2020, the supervisory body treated the Ripple coin as a digital currency, even till the end of the Trump Administration.\
After a series of court proceedings, Ripple has enjoyed major victories over the Commission, including gaining access to the body's internal memo. Whatever the case's outcome, Ripple has proven to the Federal Agency that it is a force to reckon.
Ripple gaining access to SEC discussions regarding digital currencies is a very significant victory for the company. The Commission doesn't consider popular coins like BTC and ETH as securities because they operate in a "decentralized" manner. On the other hand, it doesn't treat the XRP the same way, even when both coins use similar blockchain technology to facilitate their trade.
This decision has raised concerns about the Commission's true feelings about other crypto coins for the longest time. Now that the crypto company has gained access to the Commission's internal memo. Ripple has the chance to understand why the SEC treats XRP differently from Bitcoin and Ethereum.
According to Mathew Solomon, Garlinghouse's attorney, if there is a slight chance the SEC thought there were similarities between the XRP and both coins, it could cost them the entire case.
On May 30, 2021, Magistrate Judge Sarah Netburn presided over the case. The Federal Commission put forward a motion on May 7, 2021. Requesting that the crypto company be forced to produce internal notes containing their discussion with the company's lawyers regarding the sales of XRP.
The regulatory body claimed that when Ripple consulted with their lawyers regarding the sale of XRP in 2013--- it's possible they discovered the coin could be categorized as a security. Despite knowing this, they chose not to register the entity legally.
Judge Sarah did not allow the Federal Commission to gain access to Ripple's internal legal memos. She stated that those conversations fell under "attorney-client privilege." This clause encourages open conversation between lawyers and their respective clients. This section exists for the larger interest of the public, in line with the law.
The Ripple coin was repeatedly listed on major crypto exchanges for over eight years, with billions of XRP sold worldwide.
The court questioned why it took the Commission more than eight years to put forward a legal complaint.
On December 22, 2020, the SEC put forward a case against both CEOs . The Commission claimed that both leaders (Christian and Garlinghouse) illegally made $1.3 billion by selling unregistered securities to traders worldwide. Both Ripple executives were brought to trial for purposely manipulating the coin's price prediction mechanism to drive sales.
Magistrate Judge Sarah Netburn refused to grant the Commission access to the financial books of Christian Larsen and Bradley Garlinghouse. She decided that the information was not useful to the unique nature of the lawsuit.
For a long time, the crypto firm has tried to revisit the Commission's stance on the state of the Ripple coin and whether they believed it should not be considered a commodity. In the past, both parties were unable to reach a consensus on the way forward.
At the moment, the lawsuit has morphed from an "SEC vs Ripple case" to an "SEC vs Crypto Community" scene. This caused the Commission to face a lot of backlash from investors and traders alike.
The recent victories against the Commission have inspired a lot of Ripple investors to organize better and stronger. For example, on March 19, 2021, John Deaton represented small XRP investors and filed a case against the Federal Regulator. He stated that the Commission did not have the best interest of investors at heart because the rules were not well stated in the past.
With the amount of public attention the case enjoys. It is only a matter of time before other crypto companies organize to hold the SEC to higher standards. It is expected that the current lawsuit will cause more people to ask for better-structured policies regarding digital coins and their usage.
For over eight years, the fintech company has proven to be a sound player in the digital coins market. When the case gained public attention, the Ripple litigation news led to a drastic fall in the weight of XRP . This fall cost investors and traders a lot in investments. However, the company's resilience is unwavering, and the firm has worked to rise above the present challenges.
The recent victories against the supervisory body have boosted investors' trust in the firm's capabilities and have strengthened the weight of the XRP coin. At the moment, it's unlikely that the firm will crumble under the weight of this lawsuit.
Ripple Labs has been expanding its sphere of influence all over the world. The company enjoys major dealings in Japan, the U. K., Switzerland, and the United Arab Emirates. The current chief executive announced that the fintech firm might go public as soon as it resolves the present case with the SEC. Despite what's happening in the market and current dispensation, the firm's near future seems bright.
Despite the many wins Ripple has enjoyed so far, many are worried that the case might symbolize more to come. The present lawsuit can drastically affect the entire crypto market scene and other tech firms with similar technology.
No doubt, the case against Ripple Labs has left the entire crypto community in shock. Many crypto traders and fintech companies are paying more attention to the US crypto market regulations. Many investors believe that the SEC has failed to provide progressive policies that reflect the current realities of digital assets. With concerns like this on the rise, more Americans are concerned about the fate of cryptocurrencies in their country.
The regulations guiding the US crypto market scene have been unfavorable to investors thus far. From uncertainty to not-so-clear policies, retailers are finding it increasingly difficult to trade and control their investments. As a result, more companies are moving offshore in search of favorable climes.
There is a large difference in how regulatory bodies and companies approach new trends. Fintech companies are known to boldly take on risks, especially in uncharted territories like blockchain technology. On the other hand, Federal Commissions like the SEC have to work with rules established for a past market. This constant tension is not favorable for innovation.
Companies grow wary of implementing new ideas for fear of government clap back. Regulation can't stop innovation. Thorough, unfavorable regulation negatively affects how quickly fintech companies can grow.
A lot of retailers look to the crypto trade as an alternative investment option. With it, they've been able to grow their earnings and, in turn, increase the quality of life they live. Restrictions like the Ripple case threaten these traders, Lawsuits like these negatively affect the market volatility and can cause investors huge losses. In the end, people either stop trading altogether or end up looking for alternatives away from home.
Just like Ripple, more fintech companies need to pay attention to the ever-changing laws regulating crypto coins and other digital assets. Regardless of who wins this lawsuit, it is clear that there are still many grey areas regarding the regulation of virtual currencies and how various countries view them.
