Is the XRP Ripple effect the greatest method to keep the SEC in check?

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The “cryptocurrency trial of the century,” SEC v. Ripple Labs, has sparked a debate among many on the need for regulatory clarification on the part of government organisations such as the SEC, FinCen, and the CFTC.

The issue of “Regulation by enforcement” via the example of the Ripple-SEC lawsuit was the subject of the latest edition of the Fourth Branch podcast, with the panelists for the same including attorney John Deaton, Carol Goforth, and Roslyn Layton, among others.

Understandably, Deaton came out vocally in opposition to the SEC’s action against Ripple Labs and its execs, an action he termed as “absurd,” and “credible overreach.” According to him, the SEC’s decision to prosecute the blockchain business entirely disregards the DoJ and FinCen proclaiming XRP to be a “convertible digital currency” and not a security when they sued Ripple Labs a few years ago for failing to register as a money transmitting corporation.

Deaton said that the SEC failed to interfere when it allowed Ripple to purchase 9 percent of MoneyGram “knowing that XRP would be traded or distributed by Ripple to MoneyGram.” This was true even when Coinbase went to the SEC in 2019 before listing XRP.

“And, they didn’t do anything about it.”

It’s important noting here that many people, including some who appear to support the SEC’s move, have criticised the timing of the case, especially because Ripple and XRP have been off of the market for years.The aforementioned “acts of omission” are a critical part of the defendants’ fair notice defense in the aforementioned lawsuit, a defense under which they have claimed that Ripple didn’t have reasonable fair notice that its sales of XRP were illegal sales of securities.

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Attorney John Deaton is the lead representative of a class of XRP holders who wish to intervene in the said lawsuit. When asked what a settlement in the present case would absolutely need, he responded.

“If the judge allows us to participate, the first thing I’m going to do is file a declaratory judgment, asking the court as a matter of law to say exactly what Judge Castell said in Telegram [case] where he said that GRAM itself is just an alpha-numeric code. That’s the same with XRP.”

He added,

“As a matter of law, XRP itself is an asset. And, any settlement will have to distinguish between sales of XRP in those earlier years versus the sales on secondary markets.”

However, there was some opposition from the panel itself, with Professor Carol Goforth claiming that, while the timing of the case was all wrong, the SEC’s actions were completely legitimate under the law.

She added,

“They [XRP holders] bought XRP because they expected Ripple to push up the value of the token so that it would be a speculative profitable investment. It’s a common enterprise and everyone’s interest in XRP rises or falls together and it is something where they are expecting profits from the efforts of Ripple and that makes it a security.”

Others on the panel, on the other hand, took a more neutral stance, with China Tech Threat’s Roslyn Layton stating that what is needed is a “durable way to keep the SEC in check,” possibly through a “Ripple test” to account for the modern-day, as the Howey Test may not be best suited to assess cryptos at this time.

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