Crypto firms emboldened by court victory over SEC

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What Ripple has done is mark the end of a stage in crypto [of] this idea that the SEC alone could solve tough crypto questions, said Justin Slaughter, a former SEC and CFTC official who is now chief policy officer at venture capital firm Paradigm, a major investor. in crypto. For those of us who have studied this carefully, the flaws in this approach were apparent from the start. It was a house built on bad foundations, but now I think everyone sees it.

Over the past year, the SEC has waged a sweeping crypto crackdown that has ensnared the world’s largest digital asset firms at Binance, Coinbase, and Kraken, alleging fraud and mismanagement at some companies, and stoked fears among Democrats in Congress that consumer protections are lacking. Gensler and the agency have been driven by their belief that most of the thousands of tokens in circulation are unregistered securities that should be regulated like stocks and bonds, and they’ve been backed by a near-perfect court record so far. ‘now.

Torres’ decision sets the stage for a new power struggle between the SEC and crypto.

The judge, who is based in SEC Headquarters Court for the Southern District of New York, found that Ripple violated securities laws by not registering the XRP token in sales worth 728 million dollars to institutional investors. However, in what is considered the biggest loss to date for Washington’s broader crypto enforcement campaign, Torres also said that in other cases, such as when investors buy XRP on an exchange cryptographic, the token does not fall under securities laws.

The SEC just suffered a massive loss here, Ripple’s chief legal officer, Stu Alderoty, said in an interview. Their regulation-by-enforcement strategies that have crippled the crypto economy in the United States have been humiliated by this decision.

Coinbase, the largest U.S. crypto exchange, says the ruling is an additional pillar in its defense against SEC claims that the company must abide by the same rules that govern the New York Stock Exchange and Nasdaq, according to a report. person familiar with Thinking Fellowships who was granted anonymity to discuss internal conversations.

Immediately after the decision, an SEC spokesperson said the agency was reviewing the ruling and was satisfied with parts of the case. This includes Torress’ decision to maintain that the current test for determining whether an asset is an investment contract and therefore under SEC scrutiny still applies to crypto. Gensler and the SEC have long argued that investors need the full protection of securities laws or they will operate at a significant disadvantage.

Any individual investor takes a lot of risk when looking at these markets, Gensler said Wednesday in a call with reporters.

The SEC has fended off attacks on its authority on crypto for some time. In Congress, lawmakers such as House Financial Services Speaker Patrick McHenry (RN.C.) and Agriculture Chairman GT Thompson (R-Penn.) have introduced legislation that would impose new restrictions on the SEC’s ability to monitor the entire market. The senses. Cynthia Lummia (R-Wyo.) and Kirsten Gillibrand (DN.Y.) also rolled out revamped legislation on Wednesday that would require crypto exchanges to register with the CFTC.

Some securities lawyers were quick to blast Torress’ 34-page opinion. Tyler Gellasch, a former SEC official, warned on Thursday that the decision could inadvertently spill over into other corners of finance, such as over-the-counter stocks.

Others said the Torress split decision would mean that venture capitalists, hedge funds and other sophisticated investors are protected by securities laws, unlike ordinary investors who trade on crypto exchanges.

It’s inconsistent on the face of it, said Tulane University law professor Ann Lipton. Any lawyer can look at this and say it doesn’t make sense. That doesn’t seem terribly long for this world.

Ultimately, the SEC can appeal the decision, Lipton said. She added that the agency, as well as Ripple, may even ask to do so in the short term despite the fact that some of the SEC charges from late 2020 against Ripple executives are now expected to go to trial.

The call, whenever it comes, could be critical to the SEC’s crypto enforcement campaign. In the meantime, however, the agency may not be completely irrelevant. A panel of U.S. federal appellate judges is expected to soon rule on a lawsuit filed by Grayscale Investments against the SEC, challenging the agency’s decision to reject its bid to launch a Bitcoin-tracking exchange-traded fund. .

The SEC’s position is weak right now, Slaughter said. Another bad decision could have a multiplier effect.

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