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The Ripple Decision Is ‘Troublesome On Several Levels’

2023-07-17 17:16:40

The decision in favor of Ripple Labs resides on shaky ground, according to John Reed Stark, a former attorney with the SEC's Enforcement Division.


John Reed Stark, a former employee of the Securities and Exchange Commission, spoke out against the latest verdict in the matter of Ripple Lab, calling it troublesome on multiple fronts in a LinkedIn post. By analyzing the basis on why Judge Analisa Torres decided in favor of Ripple in a complaint initiated by the SEC back in 2020, stating that the company's XRP cryptocurrency constituted a security, Stark dissected the judge's ruling from July 13.

Judge Torres' ruling shows that the XRP token was an asset when sold to financial institutions, but it wasn't a security in programmatic sales (public sales) and other types of sales, such the distribution of tokens to staff. For the alleged infraction, Ripple may also be subject to a fine and a revocation for institutional investors, whose sales allegedly totaled $720 million.

In contrast to investors who bought XRP coins on exchanges who could not fairly expect the same, Judge Torres' reasoning in the ruling states that financial institutions justifiably anticipated that Ripple would use the funds that it obtained from its sales to reinforce the XRP ecosystem and thus improve the price of XRP.

According to Stark, the ruling creates a set of quasi-securities that discriminates, and can be seen as how experienced the investor is who purchases the token. Stark also points out that this reasoning appears to be at odds with the investor protection principles, which indicate that whether an investor reads papers relevant to the acquisition of an asset should not have any bearing on the degree of protection the person has. Based on the notion that individual investors can't fight for themselves, securities regulations were explicitly created to safeguard individuals [...]. This idea is contradicted by the Ripple ruling, Stark said.

Stark, who worked in the SEC's Enforcement Division for more than 18 years as an attorney, believes that the judgment resides on unstable ground, is likely for appeal, and will likely result in reversal. Stock is always stock; it cannot change into 'not stock. “Therefore, in my opinion, the 2nd Circuit will reverse the District Court's decisions on programmatic and other sales and the SEC will appeal the Ripple judgment there”, he said.

The crypto world and Ripple hailed Judge Torres' decision as a success. In a recent interview, the company's CEO, Brad Garlinghouse, suggested that it would take some time for the SEC to be able to appeal the ruling. Additionally, Garlinghouse referred to the institutional sale verdict as the tiniest piece of the complaint and asserted that the SEC's appeal of the retail sale decision would only support Torres' conclusion.

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