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Ripple and XRP
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August 1, 2023

Former SEC Official Says Ripple Court Decision Already in ‘Big Trouble’ – Here’s Why

By Daily Hodl Staff

The former Chief of the U.S. Securities and Exchange Commission’s (SEC) Office of Internet Enforcement says there are problems ahead for Ripple’s historic court ruling.

Ex-SEC official John Reed Stark says other courts are already becoming skeptical about the ruling that Ripple’s programmatic sales of XRP don’t qualify as securities transactions. 

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Stark references a ruling from SDNY (Southern District of New York) District Judge Jed Rakoff that allowed the SEC to go forward with its case against Terraform Labs and its founder Do Kwon, while also rejecting the distinction made in the Ripple case between public and institutional sales.

Says Judge Rakoff of the Ripple-SEC lawsuit decision,

“The Court rejects the approach recently adopted by another judge of this District in a similar case, SEC v. Ripple Labs Inc., 2023 WL 4507900 (S.D.N.Y. July 13, 2023)…

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According to that court, this was because the re-sale purchasers could not have known if their payments went to the defendant, as opposed to the third-party entity who sold them the coin. Whatever expectation of profit they had could not, according to that court, be ascribed to the defendants’ efforts.

But Howey makes no such distinction between purchasers. And it makes good sense that it did not. That a purchaser bought the coins directly from the defendants or, instead, in a secondary re-sale transaction has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts…

Simply put, secondary-market purchasers had every bit as good a reason to believe that the defendants would take their capital contributions and use it to generate profits on their behalf.” 

In a LinkedIn blog post, Stark reiterates his stance that the XRP decision will be appealed.

“But in my honest opinion, the decision resides on shaky ground, will likely be appealed at some point, will likely result in reversal and is not necessarily a cause for celebration. (Please don’t kill the messenger.)” 

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However, Ripple Chief Technical Officer (CTO) David Schwartz has a different take on the matter.

“This ruling seems to be based no some very unusal properties of this particular scheme and not the way cryptocurrencies generally work. None of the below, the crux of the reasoning here, applies to typical cryptocurrencies as far as I can tell.”

Source: David Schwartz/YouTube

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