SEC Update — Preliminary Ripple Response


Here’s the observe I despatched to Ripple workers at the moment relating to Ripple’s preliminary authorized response to the SEC’s criticism.

Hi Ripple group,

Since the SEC filed its criticism on the finish of December, its facet of the story has been the one one shared publicly. Our preliminary response was lastly filed at the moment. The “Answer” is a authorized doc (filed publicly) which, because the identify suggests, is our official reply to the allegations within the SEC’s criticism. Although it doesn’t totally define our technique (extra to come back because it performs out in courtroom) it’s our first alternative to begin to set the file straight.

Although the authorized course of is sluggish, we’re working to get this resolved as shortly as doable to convey readability to the broader market. Moving shortly is vital as a result of, as , for the reason that SEC filed its criticism, XRP misplaced virtually half of its market worth, inflicting retail holders of XRP with no connection to Ripple– the very people the SEC purports to guard – to undergo billions of {dollars} in losses. What’s extra, a part of the SEC’s mission is to take care of orderly markets… and but their overreach created havoc available in the market.

The “Answer” is a protracted authorized doc, however I’ll summarize the details under. It seems just like the abstract of our Wells Submission, which a few of you could have in all probability learn. 

XRP Is Not an Investment Contract

The solely query on this case is a technical one: whether or not or not Ripple’s restricted distributions of XRP have been an funding contract. To be clear, there aren’t any allegations of fraud, misrepresentation, and many others. While we’ve seen some Twitter commentators recommend this can be a non-fraud/fraud case, a primary yr legislation pupil can let you know that there isn’t a such factor. It’s deceptive and irresponsible (to not point out foolish) to even recommend in any other case. Turning to what issues…. 

In our “Answer,” we clarify why there isn’t a “investment contract” :

  1. XRP is a digital foreign money and thus, outdoors the SEC’s jurisdiction.
  2. Ripple has by no means entered a contract for an funding with any holders of XRP. 
  3. Ripple by no means held an ICO, by no means provided future tokens to lift cash and has no relationship with the overwhelming majority of XRP holders.
  4. Holding XRP doesn’t imply an individual receives a portion of Ripple’s income or earnings.
  5. Ripple’s XRP gross sales amounted to far lower than 1% of the huge XRP market that has grown during the last 8 years. 
  6. The XRP Ledger, on which XRP truly strikes, is totally decentralized. The SEC ignores the financial actuality of an XRP transaction. 
  7. Ripple’s XRP holdings don’t create an funding contract any greater than DeBeers holdings convert diamonds into securities.  

The SEC Is Out of Step Domestically and Globally

Before this case, no securities regulator on the earth has claimed that transactions in XRP should even be registered as securities, and appropriately so. The performance and liquidity of XRP are wholly incompatible with securities regulation. Requiring XRP’s registration as a safety would impair its important utility.

In truth, regulators within the US authorities (the Department of Justice and FinCEN) decided in 2015 and 2020 that XRP is a digital foreign money and have since regulated it as such. Basically, on its means out, the Trump administration sought to undo the dedication that XRP was a digital foreign money made in the course of the Obama administration.

Globally, the identical is true of regulators – the UK’s Financial Conduct Authority, and regulators in Singapore and Japan have concluded XRP is a digital foreign money or a crypto asset, and never a safety. With its criticism, the SEC is asking the Court to contradict the findings of the company’s friends within the US and worldwide. 

The SEC Is Picking Winners and Losers

Although XRP is probably the most environment friendly digital asset for world funds benefiting shoppers around the globe (and is probably the most environmentally sustainable crypto), there isn’t a principled distinction between XRP’s present perform and that of BTC or ETH. How does the SEC clarify telling the general public that BTC and ETH aren’t securities, then turning round and alleging the other is true for XRP?

What’s notably fascinating right here is that at one level, the SEC claimed that ETH might need been born a safety, however finally developed right into a non-security, providing no steering or framework for this dedication. We’re simply asking for the principles to be acknowledged clearly and for these guidelines to be utilized persistently throughout the board. We despatched a FOIA request to the SEC asking for extra details about how the dedication was made, in hopes of gaining extra readability on how they got here to the preliminary conclusion about ETH.

Furthermore, XRP is a good deal extra environmentally pleasant than BTC and ETH, contemplating it avoids the mining course of. The energy wanted to mine and validate BTC transactions leaves an unlimited carbon footprint, in comparison with the modest quantity of power consumed by XRP transactions. That should matter from a coverage perspective. 

The SEC Has Distorted the Facts

The criticism filed by the SEC is filled with cherry-picked quotes taken out of context, and attracts conclusions which might be unsupported by each the details and the legislation. Through our response we begin to make clear the file. While we will’t get into the entire specifics on this format (that can occur because the case progresses), you’ll see we denied most of the SEC’s  allegations. In time you will note why.

I’ll share a quote from one among our outdoors counsel along with his analysis of the case – I feel summarizes the state of affairs fairly properly:

“The SEC’s case is unprecedented and ill-conceived. The SEC has ignored XRP’s clear status as a virtual currency, contradicting not only the findings of other U.S. regulatory agencies, but also international regulatory regimes. Over the last eight years, the XRP market, independent of Ripple’s activities, had grown to a massive scale- trading on over 200 exchanges worldwide. The SEC is now stretching the concept of an “investment contract” past its breaking level. We stay up for presenting our case in Court.” Andrew Ceresney, Debevoise & Plimpton

I need to thank Team Legal for all of their laborious work on this – and, on behalf of Brad, acknowledge the broader Ripple group for staying targeted on executing towards our imaginative and prescient whereas we take this case to the courts. 

Best,

Stu

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