Key Sec vs. Ripple takeaways:
- Blockchain startup Ripple disclosed a report from a lawfirm containing a detailed analysis on a possible initial coin offering.
- The document could harm the company’s fair notice defense.
- Securities and Exchange Commission tried to avoid unsealing 63 emails related to the Hinman speech.
YEREVAN (CoinChapter.com) – Ripple complied with Judge Torres’ order in the SEC vs Ripple case and unsealed a series of 2012 documents that contain the “legal analysis and recommendations” concerning the company’s decision to hold an initial coin offering (ICO) of XRP.
Law firm “Perkins Coie” provided the said analysis and mentioned that the US Securities and Exchange Commission could possibly consider the sale of “Ripple Credits” unlawful.
Although we believe that a compelling argument can be made that Ripple Credits do not constitute “securities” under the federal securities laws, given the lack of applicable case law, we believe that there is some risk, albeit small, that the Securities and Exchange Commission (“SEC”) disagrees with our analysis.
The more that Founders and Company promote Ripple Credits as an investment opportunity, the more likely it is that the SEC will take action and argue that Ripple Credits are “investment contracts” and thus securities under the federal securities laws.
stated the report.
Why is the excerpt important?
The SEc vs. Ripple lawsuit has been ongoing since Dec. 2020, and “fair notice” has been one of Ripple’s core defense strategies. In detail, the company argued that the law-enforcement agency had not given a warning before filing a lawsuit.
At the same time, the SEC tried to trump the argument by claiming they shouldn’t have to explain laws to each company separately. In other words, the prosecution leans on the principle that ignorance of the law was no excuse.
The law firm’s analysis clearly stated that if the company abides by certain rules (described at length in the document), it is “unlikely” to fall under scrutiny. However, the report also warned Ripple of the risks associated with the “lack of applicable case law.”
Also read: Are XRP and Ethereum both securities? Even SEC chair Gary Gensler doesn’t have an idea.
Does the warning crumble the fair notice defense? The answer is still not entirely clear. However, the SEC might have shot itself in the foot over another defense pillar: the Hinman speech.
Hinman Speech and the SEC
Notably, William Hinman is the former Director of the Corporation Finance Division at the SEC. In his June 2018 speech, he voiced his opinion on digital assets. Excerpts:
Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.
said the former official.
Ripple held on to the opportunity and accused the agency of extreme and unsubstantiated bias against XRP. However, the SEC claimed that Mr. Hinman’s speech constituted his “personal opinion” and not the agency’s official stance.
However, in the latest development, the SEC filed a motion to reconsider Judge Torres’ order to hand over Hinman speech-related emails. Jeremy Hogan, an attorney versed in crypto-related cases, commented on the SEC’s move, calling it a “blunder.”
He noted that “changing the tune” mid-case is typically a big mistake for the prosecution. Moreover, Mr. Hinman himself has said under oath that “the speech was intended to express [his] personal opinion.” However, Mr. Hogan claimed that filing a motion for reconsideration weakens the SEC’s position on the matter.
Also read: Ripple’s fair notice defense faces new challenge from the SEC.
Thus, sixty-three Hinman speech-related emails remain pending. As of Feb 19, the lawsuit is still ongoing, with no definitive skew to either side. Ripple might have dug itself a hole on the fair notice defense. However, the SEC’s Hinman speech “blunder” could play to their advantage.
Moreover, unclear crypto-related laws remain a significant issue in the lawsuit that will surely set a precedent for crypto regulation in the future.
