SEC May Face ‘Bruising Defeat’ Against Fintech Firm
The ongoing battle between fintech firm Ripple and the US Securities and Exchange Commission (SEC) may be coming to a conclusion. However, the regulator’s chances of a victory are increasingly slim, according to legal experts.
Crypto-legal experts have suggested that the SEC could be looking at a “blue defeat” in its case against Ripple. A judgment against the regulator could severely limit its capacity to oversee the regulation of the crypto-asset sector. This will be a major victory for industry and innovation in the United States
On October 30, senior analyst Roslyn Layton told Forbes: “If that’s how it ends, it will have been a self-inflicted disaster from the start.”
The Ripple Backlash
The SEC took action against Ripple and two top executives in December 2020. It accused the company of conducting an unregistered securities sale of the XRP token. Earlier this month, Ripple CEO Brad Garlinghouse called the SEC’s reluctance to hand over key documents “disgraceful.”
Ripple and token holders have been fighting back for nearly two years, and their case is getting stronger. Furthermore, over 75,000 XRP investors have joined the case filing amicus briefs supporting Ripple.
“The SEC has had no allies, not even its own expert witnesses who ended up providing ammunition to the defense,” Layton wrote.
Attorney Jeremy Hogan said the SEC can only win if Judge Torres, who is presiding over the case, “forgets his first year of law school.”
Other prominent legal experts also agree that Ripple is on its way to victory. These include Curt Levey of the Federalist Society and Professor JW Verret of George Mason University’s Scalia School of Law.
Overturned the Howey test
Verret said the SEC could appeal to the Supreme Court, which it would likely lose. This could completely overturn or eliminate the use of the Howey test to classify cryptocurrencies.
SEC Chairman Gary Gensler has used this test to argue that crypto assets are securities. The Howey test, defined in 1946, determines what qualifies as an “investment contract” and therefore a security. The contract is defined as an “investment of money in a joint enterprise with a reasonable expectation of profit from the efforts of others.”
Ripple has already agreed to settle and pay a fine if the SEC declares that XRP is not a security. However, it seems that Gensler and co. is determined to keep fighting even if it is a losing battle.
A win for Ripple would not only see their token prices rise, but could also set a precedent that prevents the SEC from falsely labeling cryptocurrencies as securities and cracking down on enforcement.
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