Ripple lawyer believes SEC will begin a hunt for crypto exchanges after Ripple case

• US Securities and Exchange Commission (SEC) issues guidance for cryptocurrency exchanges.
• John Deaton, attorney for XRP holders in Ripple vs. SEC case, thinks the agency will start taking legal action against cryptocurrency exchanges.

On March 30, the SEC Division of Examinations released a report which emphasized the technological, legal, and regulatory risks associated with securing crypto assets. The agency highlighted that the cryptocurrency sector will be one of the priorities of the Division of Examinations of the Securities and Exchange Commission.

The regulator’s spokesman said:

Examinations of market participants engaged with crypto assets will continue to review the custody arrangements for such assets and will assess the offer, sale, recommendation, advice, and trading of crypto assets.

Reaction from Ripple side

John E Deaton, attorney for XRP holders in Ripple versus SEC reacted to the news. In his tweet, John explained that in his opinion, the SEC has taken the first step toward pursuing legal action against cryptocurrency exchanges.

The SEC is making shit up as it goes. The war continues. I predicted an SEC lawsuit against one or more exchanges by the end of the summer. I still believe it. https://t.co/yqA3acfPmw

— John E Deaton (@JohnEDeaton1) April 1, 2022

Please note, that the SEC said they have refused many pleas over the years to provide regulatory guidance over the crypto assets. The release also mentions that “responsibility for the lack of legal and regulatory clarity lies at our doorstep.”

Also Read: SEC granted discovery schedule extension as efforts to frustrate Ripple continue

Will the SEC go beyond its jurisdiction?

While this recognition may be the first step toward a regulatory framework, there are concerns that the oversight body will expand its jurisdiction. Recent hacks in the crypto industry provided the basis for these new regulations, which are consistent with Gensler’s earlier statements, including users buying cryptocurrency on Coinbase, who have made unsecured loans to the company.

Under the new rules, all digital assets owned by investors on the platform will be treated as platform assets. This will affect most companies’ balance sheets and leave them under SEC scrutiny.

Last year, Coinbase reported $21.3 billion in assets and liabilities on its balance sheet; it had $278 billion in digital assets at the time. According to SEC registration requirements, any company with more than $50 million in assets immediately falls under Securities and Exchange Commission jurisdiction.

Thus, liquidity providers and automated market makers may have no choice but to register with the SEC if digital assets are added to their balance sheets. There are other suggestions, such as including crypto market participants, particularly in the definition of dealers or dealers in government securities.

Ultimately, this means that they must register with the SEC and comply with federal securities laws and regulatory obligations.