Curtain Could Soon Fall on Ripple Labs vs. SEC Case

The industry-defining court case between the Securities and Exchange Commission (SEC) and Ripple Labs may be drawing to a close.

The curtain could soon fall on a case that has captured the interest of the cryptocurrency industry for close to two years.

On Sunday, Sep. 18, 2022, Ripple defense attorney James K. Filan tweeted that Ripple Labs, current CEO Brad Garlinghouse, and former CEO Christian Larsen had filed an early motion for summary judgment. A summary judgment can occur when the parties filing for the motion can demonstrate that there are no genuine factual disputes.

One of the critical areas of contention asserted by the defendants is that the SEC has no jurisdiction over foreign transactions involving XRP, Ripple Lab’s native coin, since the transactions occurred on overseas exchanges Binance, Bitfinex, Bitforex, Bithumb, Bitlish, BitMart, Bitruem, and Huobi, amongst others.

The SEC sued Ripple Labs, its former CEO Christian Larsen, and current CEO Brad Garlinghouse for allegedly raising $1.3 billion through unregistered securities sales and the latter for personally reaping hundreds of dollars worth of profits. The lawsuit was filed in Dec. 2020.

Not an investment contract, Ripple argues

The defendants assert that the SEC cannot prove that the transfer of XRP involves an “investment contract,” a critical component needed to qualify an asset as a security under the so-called Howey Test.

“There can be no ‘investment contract’ if there is no “contract” with the characteristics of an investment. There also can be no ‘investment contract’ unless the contract includes an undertaking of post-sale obligations by the promoter to the investor. Otherwise, the contract is simply an asset sale.” the defendants argue.

Also, the defendants assert that can be no ‘investment contract’ unless the investor procures a contractual right to demand and receive part of the profits generated by the promoter’s activities.

The SEC has failed to prove that an investment contract exists without these constituents, hence the defendants’ motion to apply for summary judgment.

Earlier in the case, to support the argument that Ripple was not a security, the company and Larsen and Garlinghouse sought to leverage a statement made by senior official William Hinman in 2018. In the statement, Hinman stated that he didn’t believe Ethereum, the world’s second-largest cryptocurrency by market cap, was a security.

Could a win be on the cards for the crypto industry?

Should the court execute summary judgment, the case could prove to be critical in determining which cryptocurrencies are securities that fall under the jurisdiction of the SEC. A recent statement from the White House on crypto regulation has been criticized for not providing clear guidelines on determining whether certain crypto assets are securities. Recent testimony by SEC chair Gary Gensler said that the “vast majority” of crypto assets are securities.

“Trying to squeeze digital assets, which are more akin to commodities than securities, into a securities regulatory framework simply doesn’t work,” said Stu Alderoty, one of Ripple’s lawyers.

“All roads don’t lead to the SEC because the SEC doesn’t have a rational regulatory framework.”        

XRP is trading at $0.379 at the time of writing, according to CoinMarketCap.

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