Key Ripple vs. SEC takeaways:
- The SEC vs Ripple Labs lawsuit continues, as the startup demands answers from the law enforcement agency.
- What is the Howey Test and how it relates to the case.
- XRP still consolidated but flashed a bullish sign.
Yerevan (CoinChapter.com) – The US Securities and Exchange Commission’s (SEC) lawsuit against blockchain startup Ripple Labs continues to investigate the status of Ripple’s native token XRP. In the latest development, the defendants (the company and its ex-CEO Chris Larsen) filed a motion to Magistrate Judge Sarah Netburn.
The motion seeks to compel the SEC to answer interrogatories on the Howey Test and how it applies to pass XRP transactions. James K. Filan, an attorney involved in the SEC vs. Ripple case, tweeted the full motion on September 1st.
The Howey Test and how does it apply to Ripple?
In hindsight, the Howey Test refers to the SEC vs. W.J. Howey Co. lawsuit, which reached the Supreme Court in 1946. Howey Company traded tracts of citrus groves to certain buyers in Florida. In turn, they would lease back the land to Howey.
The company staff would take care of the groves and sell the fruit on behalf of the owners. The resulted in a revenue split between the parties. However, Howey Co. failed to register the transactions with the SEC, serving as a precedent for other similar cases.
Today, the courts refer to the Howey Test to determine whether an asset is a currency or a security. Moreover, cryptocurrencies are hard to categorize. Thus the status of each one is pending.
In June 2018, the SEC’s former chair Jay Clayton deemed Bitcoin a cryptocurrency instead of security.
“Cryptocurrencies: These are replacements for sovereign currencies, replace the dollar, the euro, the yen with bitcoin. That type of currency is not a security,”defined the chair.
Security or currency?
In retrospect, the difficulty of defining whether XRP is a security or currency lies at the core of the lawsuit. In December 2020, the law enforcement agency charged Mr. Larsen, the current CEO Brad Garlinghouse, and the company with fraud.
The SEC claimed that selling $1.3 billion worth of XRP should have been registered with the agency, as XRP is securities. Ripple Labs backfired, accusing the SEC of bias. If Bitcoin is not securities, why is XRP?
Fast forward to the last motion; the defendants are trying to compel SEC to provide a specific explanation on why the Howey Test applies to XRP transactions.
Defendants’ interrogatories seek, as Rule 33permits, binding representations from the SEC as to how it contends Howey applies to this case, as well as identification of the factual support (if any) for those contentions.reads the motion.
Ripple Labs claims that they still haven’t responded to why the law enforcement agency deemed XRP securities while cleared Bitcoin and Ethereum as currencies. The SEC asserts that the status of the noted digital assets is irrelevant to the case. Judge Nutburn ruled against the agency on this issue.
“[It is] relevant to the Court’s eventual analysis with respect to the Howey factors . . . it is relevant as to the objective review of defendants’ understanding in thinking about the aiding and abetting charge [and] it is relevant to the fair notice defense that Ripple is raising.”ruled the judge.
While the court proceedings drag on, XRP consolidated after a fruitful uptrend.
XRP price action
The digital asset gained 149 percent riding the recovery wave since July 21. However, after August 15, the price action consolidated. XRP/USD exchange rate stood at $1.19 in the European session Wednesday.
The digital asset sought support from its 20-day exponential moving average (EMA-20; blue wave). As a result, it also formed a falling wedge on the daily chart. However, it is a bullish pattern and promises an uptrend once the formation exhausts itself.
Also, read XRP rallies as “alcoholic” SEC risks losing a lawsuit against Ripple Labs.