Ripple’s Correspondence with the SEC
Ripple has reached out again to the U.S. Securities and Exchange Commission (SEC) through a recent correspondence directed at its Crypto Task Force, pressing for more precise regulations regarding when a digital asset no longer falls under the category of an investment contract. This letter, made public on May 28 by Stuart Alderoty, the legal officer of Ripple (XRP), addresses a significant inquiry presented by Commissioner Hester Peirce during her earlier speech titled “New Paradigm.” Peirce’s question focused on identifying the moment a cryptocurrency transitions from being governed as a security to standing apart as its own entity.
Legal Evaluations and Regulatory Concerns
In its communication, Ripple referenced considerable legal evaluations, notably a 2022 publication named “The Ineluctable Modality of Securities Law.” This document posits that a majority of fungible cryptocurrencies actively traded in secondary markets should not be classified as securities, since there are no ongoing responsibilities imposed on buyers by the original issuers. Additionally, Ripple pointed to a pivotal ruling from 2023 in the case of SEC vs. Ripple Labs, which determined that XRP itself is not inherently categorized as a security; it noted that only specific early sales to institutional investors were deemed investment contracts.
Proposed Legal Standards
Ripple also suggested a definitive legal standard, proposing that a digital asset should be automatically considered distinct from an investment contract unless two specific criteria are satisfied. The first criterion requires the issuer to have made significant promises that have not been fulfilled, while the second stipulates that current holders must possess enforceable rights against the issuer. This framework aims to prevent regulators from targeting assets solely based on their origins, thus providing more legal certainty for participants in the cryptocurrency market.
A sound safe harbor should operate within, not expand, the existing scope of federal securities law.
Ripple insisted on regulations that safeguard legitimate market actors without granting protection to those acting in bad faith.
Advocating for Objective Measures
Additionally, Ripple took a stand against ambiguous regulatory concepts such as “sufficient decentralization,” instead advocating for objective measures that could include criteria like the maturity of the network, its historical public trading data, and the absence of any singular control. The company argued that any new regulatory measures need to align with existing law rather than be shaped through enforcement actions.
Legal Confrontation Conclusion
This letter emerges as Ripple and the SEC are nearing the conclusion of a prolonged legal confrontation. Following the dismissal of a potential settlement plan by Judge Analisa Torres on May 15, attributed to procedural discrepancies, both factions are anticipated to submit new proposals soon.
