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The Securities act was established in 1933 amidst the Great Depression and following the stock market crash of 1929, becoming the first federally legislated regulation over the stock market. It serves two main purposes:
- Guarantee that investors are given financial information regarding securities that are for sale to the public.
- Interdict any deceit or fraudulent misrepresentation during the sale of securities.
The Howey Test:
The US Supreme court utilizes the “Howey Test” to determine whether a transaction should be considered an investment contract and therefore would be subject to requirements under the Securities Act. The supreme court came up with a short list of four criteria to aid in determining if an investment contract exists, they are as follows:
An investment of money
In a common enterprise
With the expectation of profit
To be derived from the efforts of others.
Now that I’ve explained exactly what it is that SEC stands for it should make a little more sense what they are fighting for in the infamous SEC VS. RIPPLE LABS lawsuit that has gained so much notoriety, in part because of the large following that Ripple’s native token XRP has but also the longevity of the case itself. It is safe to say that XRP has some believers (myself included having dropped a couple of thousand into it and that has been DURING the lawsuit). The stakes are extremely high for both parties in this suit because a lose for XRP is the difference between XRP being considered a US currency if they win OR merely a security token if they lose. SEC stands to benefit from winning because proving that XRP is in fact a security token puts many other tokens in SEC’s crossfire and the potential for more lawsuits looms for tokens that yield similar characteristics to XRP.
What John Deaton has to say about all this!
RIPPLE LABS is being represented by John Deaton, managing partner of Deaton Law Firm that Deaton founded in 2006. Deaton seems to be taking the correct avenues in this venture as he recently filed a class action lawsuit against SEC and he is not standing alone in that lawsuit! As of Monday August 8th, at least 70,100 XRP holders joined Deaton in the lawsuit. Ripples attorney took to Twitter (as most do) to send out a little tweet throwing some shade at SEC chairperson and enforcement director, Gary Gensler, the tweet reads:
70,100 as of now. @GaryGensler & @SECEnfDirector over 70K #XRPHolders from diverse backgrounds from all 50 states, every U.S. territory, and 141 Countries around the have joined together to fight your unlawful expansion of Howey. You will lose the war. https://t.co/FHr5HkUxOh
— John E Deaton (210K Followers Beware Imposters) (@JohnEDeaton1) August 8, 2022
Deaton of course had to comment on the profound amount of love that has undoubtedly been shown to XRP in terms of supporters that signed the class action lawsuit. In the beginning of 2021, a mere seven XRP holders signed the petition. A huge turn around a short 20 months later with over 70 thousand signatures to date! This kind of publicity could be just what XRP needs to get a leg up in this seemingly never-ending lawsuit.
What brought on this seemingly “clap-back” lawsuit?:
That’s a loaded question. To some it would seem as though RIPPLE is fighting fire with fire by initiating a class action lawsuit against SEC but there is definitely some solid validity behind the suit.
Not long after SEC sued RIPPLE for allegedly selling unsecured securities XRP was almost immediately delisted by several very popular exchanges, including Coinbase, which is currently the most popular exchange in the United States. We all know what this means for XRP’s value, the delisting resulted in an almost immediate crash in the tokens price, losing over sixty percent of its value and dropping to a mere 21 cents as 2020 closed. That is when Deaton initiated the class action lawsuit in lieu of the millions, even billions of dollars lost by investors in the token as a direct result of the delisting. To say the least the class action lawsuit is a very legit lawsuit indeed. Especially if XRP ends up winning the lawsuit. It seems then that XRP having been delisted would be considered a result of mere slander and here say as a win would debunk accusations that XRP is a security token.
-New(ish) developments regarding Bill Hinman's 2018 speech-
In June, SEC took a major blow in the Hinman related hearing that was held. In 2018 the then active but currently former director of corporate finance Bill Hinman gave a speech where he publicly admitted that offers and sales of ETHER are not securities transactions. This put forth the ETH price rally and really solidified the public, and industries outlook on digital currencies not being securities.
The legal counsel for SEC struggled from the very beginning to solidify Hinman’s role in the company when the 2018 speech was made. The SEC’s legal counsel was trying to hide behind the attorney-client privilege which protects information shared between a client and legal counsel. If Hinman is the client that would deem the speech inadmissible in court. However, if it could be proven that legal counsel for SEC were counseling Hinman merely as a representative of SEC, client-attorney privilege would be null and void thus forcing the disclosure of the 2018 speech related documents into the suit. Many view this as the nail in the Securities Administrative Counsels coffin as Hinman clearly admits that sales that bare the same qualities as XRP are NOT security transactions. This coupled with the fact that even the judge expressed clear annoyance with the lack of clarity regarding Hinman’s role (or lack thereof) in the SECS business model at the time of the 2018 speech, give followers of the case the notion that things aren’t looking to good for the SEC. Not to mention this speech will likely come back to haunt them once the attorney-client privilege kink has been worked through.
Final Thoughts & Potential Timeline for the end of the suit
Touching on the fact this suit seems to have no end in sight, both SEC and RIPPLE signed briefs and put together a timeline and this timeline reflects that both parties will be wrapping up final arguments around Christmas time of 2022 and a final decision will possibly be made in March of 2023. So, it’s looking like we have another six months to go before we finally see how this thing is going to pan out.
What I can say is that while it has been a long ride it has been an entertaining one to say the least. Both parties brought their A-game, and it has made for an interesting lawsuit to follow, not to mention it has become the talk of the town in the Crypto World. While I am a die hard XRP fan, there is something to be said for the work that SEC does to try to keep everyone in the selling, trading, cryptocurrency world safe and I think we all appreciate that. With that being said I am still hoping for a win for XRP in March (hopefully sooner than that) , until then I suppose we will all remain on our toes anticipating the outcome!
