SEC’s Case Against Ripple and XRP Is Huge Risk for Crypto Exchanges, Says Kraken CEO

Kraken CEO and co-founder Jesse Powell fears that the U.S. Securities and Exchange Commission’s (SEC) case against Ripple could put crypto exchanges in jeopardy.

This week Powell took to Twitter to voice his concerns over the SEC’s lawsuit against Ripple, in which the regulatory agency alleges that the payment startup knowingly sold unregistered securities in the form of XRP.

The Kraken CEO warns that crypto exchanges may be put at risk as a side effect of the SEC’s legal battle with the digital payments company.

“Huge asymmetrical risk for exchanges. Have to assume SEC’s case is in good faith. Judges tend to side with agencies. If XRP is found to be a security, the SEC would say that exchanges should have known. Safe harbor pending outcome would have been responsible if only purpose is to ‘test.’”

Powell issued his statement in response to a Twitter thread from Ripple CEO Brad Garlinghouse and Ripple general counsel Stuart Alderoty regarding the U.S. State of Delaware’s latest decision to reject Tetragon Financial Group’s request for a preliminary injunction against the firm.

The Delaware Court found that the SEC had not yet determined that XRP is a security and therefore Tetragon’s claim to freeze Ripple’s liquid assets until they redeem their Series C preferred stock is not valid.

Says Alderoty,

“Update on Tetragon’s Series C shareholder suit: the Judge ruled that since there has been no official determination regarding XRP’s status, Tetragon’s claim that a securities default occurred is wrong…

The Tetragon ruling, coupled with the SEC’s filing in @JohnEDeaton1’s case, should put to rest the FUD that the SEC unilaterally determined that XRP is a ‘security.’ Glad that’s settled!”

Garlinghouse points out that the SEC’s decision to regulate XRP and the crypto space by bringing actions against the firm can cause confusion leading to complicated and fruitless legal battles as is the case with Tetragon.

“This is why regulation by enforcement wreaks such havoc. By bringing a massive enforcement case, the SEC acknowledges they didn’t ‘determine’ anything, but the crypto markets – under pressure – interpreted the filing as such, causing massive damage to retail holders. And now the SEC affirms that no determination has been made about XRP and it didn’t order or ask anyone to halt trading / delist, so retail holders shouldn’t blame the SEC but instead – wait for it – blame the exchanges!”