Underdog facing landmark victory?
Signs are mounting that Ripple will win its court case against the SEC, which has already lasted almost two years. The implications for the crypto sector would be enormous, as the lawsuit is expected to determine nothing less than the classification of cryptocurrencies. The SEC uses as its standard the antiquated Howey test, which defines securities as “an investment of money in a common enterprise, with a reasonable expectation of profits from the efforts of others,” which is not applicable to cryptocurrencies. Now legal experts think that the chances are good for Ripple to win the case and seriously deprive the SEC, which is in charge of securities trading, of influence over cyberdevices.
Sticking point Hinman documents
Ripple CEO Brad Garlinghouse tweeted that he did not believe the SEC was acting in the spirit of transparency and disclosure and that the shamefulness of its actions would become apparent if the truth came out. In doing so, he was referring to a post by Ripple lead attorney Stuart Alderoty, who stressed that the fight to have the Hinman documents considered had been worthwhile. The SEC had already been asked several times in the ongoing lawsuit to produce classified documents, internal emails and drafts of Hinman’s 2018 speech, as Ripple’s defense relies on these documents that could prove XRP is not a security.
William Hinman, former SEC director of corporate governance, had used Ethereum to argue in his 2018 speech that the cryptocurrency was not a security because the ledger had been “decentralized” over time, according to Forbes. Ripple was most recently able to obtain that the so-called Hinman documents had to be released by the SEC, though the contents are expected to remain confidential, according to Ripple chief counsel Stuart Alderoty.
Lack of evidence
The SEC was unable to produce any evidence during the proceedings that XRP was tied to the company’s performance; nor that a purchase of the cryptocurrency constituted an investment in Ripple. Countless XRP token holders took sides with Ripple and asked the judge in charge to make them defendants in the case as well, but the judge refused. Instead, she recommended that supporters file so-called amici briefs. Meanwhile, 12 companies have expressed support for Ripple via amicus curiae. According to Chief Counsel Stuart Alderoty and CEO Garlinghouse, this is an exceptionally high number that can be attributed to supporters recognizing how much damage the SEC is doing to the crypto economy as a whole.
Settlement in sight?
If the Ripple chief lawyer’s statement of intent to pay a fine for a settlement, which has been expressed several times in the past, is anything to go by, there is an opportunity for the SEC to save face. However, the prerequisite for this is that the regulator departs from the notion that today’s XRP token constitutes a security. SEC Chairman and hardliner Gary Gensler, however, still wants to hold on to the proceedings, even if powerful arguments are missing so far.