Ripple general counsel Stu Alderoty has slammed the United States Securities and Exchange Commission (SEC) for trying to “bully, bulldoze, and bankrupt” crypto innovation in the U.S. in the name of expanding its own regulatory territory.
“By bringing enforcement actions–or threats of potential enforcement–the SEC intends to bully, bulldoze, and bankrupt crypto innovation in the U.S., all in the name of impermissibly expanding its own jurisdictional limits.”
Alderoty shared his views on June 13 amidst an ongoing lawsuit between Ripple and the regulator, which he says is part of the “SEC’s assault on all crypto in the U.S.” by treating every cryptocurrency as a security.
“Like a hammer wanting everything to be a nail, the SEC is keeping everything murky so it can argue every crypto is a security.”
Ripple Labs has been embroiled in a legal battle with the SEC since December 2020, when the securities regulator filed a lawsuit alleging that Ripple executives had used Ripple (XRP) tokens to raise funds for the company starting in 2013, claiming it was an unregistered security at the time.
Ripple fought back, claiming that a 2018 speech delivered by Robert Hinman, then-Director of Corporation Finance for the SEC, had categorized Ether (ETH) and Bitcoin (BTC) and by-association, XRP, as a non-security due to being “sufficiently decentralized”.
Ripple argued that the speech was in contradiction with the SEC’s claims against Ripple and the XRP token, but the SEC countered the argument by claiming that the speech was the director’s own personal views and not the official view of the regulator. This nuance has been one of the most pivotal aspects of the Ripple vs SEC lawsuit.
4 years since the (in)famous Hinman speech, and we’re nowhere closer on knowing how to classify digital assets in the US – keeping every crypto, including ETH, in regulatory limbo. I penned some thoughts for @Fortune why enough is enough, @SECGov. https://t.co/FB16cceaia
— Stuart Alderoty (@s_alderoty) June 13, 2022
“Despite disclaimers that the speech was Hinman’s personal opinion and “not necessarily that of the Commission,” the market took Hinman’s speech to heart,” wrote Alderoty.
“For Ripple, Hinman’s speech affirmed the conclusion that XRP – a cryptocurrency that exists on an open, permissionless, decentralized blockchain ledger – was a commodity and/or a virtual currency. Certainly not a security,” he added.
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Alderoty said the speech epitomized SEC’s deliberate muddying of the regulatory waters for crypto.
“Here in the U.S., the Securities and Exchange Commission (SEC) has deliberately muddied the regulatory waters for crypto […] To unlock crypto’s true potential, we need to finally clean up this regulatory sludge.”
During a Washington Post event on June 8, United States Senators Kirsten Gillibrand agreed that most cryptocurrencies would likely be classed as securities under the Howey Test, with the obvious exception of Bitcoin and Ether.
Rostin Behnam, chair of the Commodity Futures Trading Commission (CTFC) took a slightly different view, saying that while there are “probably hundreds” of coins that replicate security coins, there are also many commodity coins, such as BTC and ETH that would be regulated by his commission.
The court battle between Ripple and SEC is expected to set a precedent for the treatment of cryptocurrencies, particularly altcoins under U.S. securities and commodities laws.
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On Wednesday, April 7, 2021, Ripple Labs, Inc. lambasted the U.S. Securities and Exchange Commission (SEC) for its continued attempt to „extend the reach of its enforcement authority well beyond the boundaries of federal law“ and clamp down on the cryptocurrency industry.
In a sharply worded statement, Ripple’s Executive Chairman, Chris Larsen, argued that the SEC’s pursuit of a court order to effectively „shut down“ his blockchain-based payments firm runs counter to the state of „innovation and technological development“ in the industry.
The SEC recently filed a lawsuit against Ripple and its former CEO, Brad Garlinghouse, accusing them of acting as unregistered securities exchanges and raising over $1.3 billion through the sale of its utility token, XRP. The regulator alleges that the XRP token is a security, and the firm should have registered it with the agency prior to offering it to investors in the U.S.
Larsen adamantly denied the accusations, citing Ripple’s „close interactions“ with the SEC over the past eight years and stated that while the company „respectfully disagrees“ with the agency’s characterisation of XRP, the lawsuit is ultimately an attempt to limit innovation in the crypt space.
“While we appreciate that the SEC is working to police the industry, we think their situation is demanding the result they want, rather than focusing on the facts at hand,” he said.
Larsen went on to suggest that the SEC’s heavy-handed tactics of seeking court orders and freezing assets „tip the scales of justice“ against small innovator companies in the digital markets and will result in a „lost decade“ of development.
Ultimately, Larsen believes that this approach will, by nature, subvert innovation in the space and have significant ramifications for the digital economy. It remains to be seen what kind of measures the SEC will take to respond to Ripple’s charges and purge the cryptocurrency industry of illegal activity.
