Ripple against SEC

United States Securities and Exchange Commission (SEC) sued Ripple in December 2020. They claim that Ripple raised illegally $ 1.3 billion through an unregistered securities offering. The lawsuit states that Ripple violated securities laws during the selling of XRP.

The lawsuit raises a major question: "Is XRP a security or a currency?"

The SEC considers it to be a security, and this is a situation when Ripple violated securities laws from their point of view. The Commission points out the lack of meaningful information for investors, which is required to perform a risk assessment.

US law states that securities are tradable financial assets in the form of stocks, bonds, or options. According to the lawsuit, Ripple created an information asymmetry that allowed their two executives to sell XRP to investors with the likelihood of biased provision of information. Top managers themselves decided what to say to investors.

At first, Ripple argued that XRP is not a security, but a digital currency. Such a position does not require compliance with SEC securities regulations.

However, the Wall Street Journal considers XRP to be the "third most expensive cryptocurrency" during 2013-2020.

Earlier, the SEC recognized that Bitcoin and Ethereum are currencies after all. Also, the Justice Department already considered XRP as a currency in 2015 in the process of settling another lawsuit with Ripple.

XRP is fundamentally different from Bitcoin and Ethereum. Ripple issued 100 billion XRP during the launch. Bitcoin and Ethereum create new coins only through mining. The process of creating new coins is still ongoing.

This is a key argument in the SEC's understanding of why XRP should be considered a security and not a currency.

UPD: On April 12, Ripple's management filed a petition to dismiss the SEC's claim. Ripple CEO Brad Garlinghouse and Chairman Chris Larsen have filed petitions with a US District Court judge to dismiss the SEC's first amended complaint against them due to bias.

If the request is accepted, there will be two successes for Ripple. First, the case will be closed. Secondly, the SEC will lose the right to bring similar charges against them in the future.

Cryptocurrency is a consistently hot topic of debate among global economies and governments. Some are digital asset friendly and openly supportive. But others are still in no hurry to give official decisions on the legality.

The United States is generally positive about the use of bitcoins and other cryptocurrencies. Regulatory discussions about blockchain are led by:

· Ministry of Finance;
· Securities and Exchange Commission (SEC);
· Federal Trade Commission (FTC);
· Internal Revenue Service (IRS);
· Financial Crime Enforcement Network (FinCEN).

All members of the list above understand "cryptocurrency" differently, and their position on regulation is also different.

For example, the SEC still hasn't approved rules for cryptocurrencies, and how people and companies should perceive them. From here grows a vague set of rules. FinCEN does not consider cryptocurrency to be legal tender. This regulator considers exchanges as a means of money transfer in their jurisdiction. The IRS began to review ownership of the cryptocurrency and issued the relevant tax regulations.

Regulators have shown steady interest, but the federal government has yet to implement a global constitutional preventive power to regulate blockchain. In some states, things are different.

As of 2019, 32 US states have already passed legislation allowing the use of Bitcoin, and distributed ledger technology (DLT). Some of them approved these technologies at the state legislature. Several of these states have also established task forces to further explore and use the technology.

Sygna Bridge's report points to the fact that cryptocurrency and blockchain have a chance to get a strong boost due to legislative regulation. The main benefits are listed below.

· Regulations give financial institutions the green light to invest in cryptocurrencies and make it safer to own virtual assets.

· It will help to transform cryptocurrency from purely speculative to usable assets. So, crypto projects will be able to become a partner for large businesses and offer them individual solutions to existing problems, without risks of a negative reaction from regulators.

Regulation makes trading virtual assets more efficient. Cryptocurrencies will become part of payment processes more efficiently in this way and are more likely to become the subject of everyday transactions.

How can the story with Ripple and the SEC end? There are many different speculations and guesses in the crypto community.

Some believe that Ripple will win. After all, they as already won a case against the R3. (R3 is a blockchain consortium that includes more than 70 retail and investment banks, including Barclays, HSBC, and UBS.) So, Ripple has strong legal support, which increases its chances to get a victory against the SEC.

Others hint at the SEC's victory. After all, there have already been similar cases of such claims from the regulator to other companies.

For example, the SEC has already celebrated a victory against startups Block.one and Kik. Then they proved that the original coin offerings were in fact securities. But this is a slightly different case. Kik and Block.one held their ICOs following the SEC directive in 2017. XRP has been around long before this directive.

But even if the SEC wins the case, XRP has no chance to "die". Ripple is one of the main coins with a huge trading volume and a large community. Also, Ripple is a coin with a lot of capital invested by bankers. Bankers will be able to solve the problem of sanctions.

There is also a neutral option that leads to changing of Ripple's business model. Examples of SEC cases exist. For example, the Gram token. Then investors' money was demanded to be returned. However, the project was not closed forcibly, and top managers did not face criminal liability. Ripple case can make the same companies avoid the US legal system.

Although U.S. cryptocurrency exchanges, including Coinbase and Kraken, have stopped XRP trading following SEC lawsuit, XRP is still traded on exchanges outside the United States. So, there's a reason for Ripple's success, but with no clear guarantees for them to the moment.