Ex-SEC Lawyer Calls Ripple Verdict “Shaky”


The court ruling in the SEC v. Ripple case raises “problems on several fronts.” This conclusion was reached by the former lawyer of the department, John Reed Stark.

According to the specialist, the verdict in favor of the fintech company “is based on shaky ground.” He did not rule out that the department will appeal against it and succeed – a higher authority will cancel decisions related to “software” and “other sales.”

On July 13, Judge Analisa Torres ruled that sales and other distributions of XRP do not constitute the offer and exercise of investment contracts.

At the same time, the purchase of coins worth more than $700 million by large players still violated US laws. Torres granted the SEC’s motion for a summary judgment on the matter.

Now the head of the company Brad Garlinghouse and chief executive Chris Larsen is waiting for a jury trial. It will decide whether top managers are responsible for the illegal sale of tokens to institutions.

The distribution of XRP through exchanges and algorithms did not qualify as securities transactions because the SEC cannot unequivocally determine that investors “reasonably expected to profit from the entrepreneurial or managerial efforts of others.”

The judge noted that so-called “software sales” account for less than 1% of global transactions with the company’s token since 2017.

According to Stark, such an outcome establishes a “class of quasi-securities that discriminate” based on the experience of the buyer of the token.

“The same token may be an investment contract in some cases and not in others. The more ignorance and willful recklessness, the less protection the market participants will receive. The less information is disclosed about the token, the less responsibility for the issuer of the token. It should not be”, – explained the specialist.

Stark also noted that the verdict may be contrary to the principles of investor protection. The latter state that the level of safety of funds should not depend on the study of materials related to the purchase of an asset.

“Securities laws were specifically designed to protect individual investors based on the idea that they cannot fend for themselves. […]. Ripple’s decision turns this view on its head. Summary: Stocks are always stocks – they can’t turn into not shares“, he explained.

Recall that in the framework of the case, the court disclosed documents related to the speech of the former employee of the regulator William Hinman from 2018.

In his speech, the ex-director of the agency’s corporate finance department said that bitcoin and Ethereum are not securities. Ripple’s management reacted positively to his statement, expressing their determination to win in court.

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