Key Takeaways:
- Stuart Alderoty argues that the term "crypto asset security" has no legal basis and is misleading.
- Alderoty references a 1976 SEC ruling to challenge the SEC's stance on unregistered securities for OpenSea.
- The Federal Court has previously questioned the clarity and legality of the term "crypto asset security" used by the SEC.
YEREVAN (CoinChapter.com) — Ripple Labs’ Chief Legal Officer, Stuart Alderoty, criticized the United States Securities and Exchange Commission (SEC) for using the term “crypto asset security.” He argued that the term is fabricated and, furthermore, has no legal basis. Additionally, according to Alderoty, the SEC’s use of this phrase is misleading.
On August 30, the SEC warned that it might oppose any plan by the defunct crypto exchange FTX to use stablecoins to repay creditors. The SEC cited concerns about “crypto asset securities” in FTX’s portfolio. In response, Alderoty quickly condemned the SEC’s choice of terminology.
Ripple Lawyer Challenges Commission’s ‘Crypto Asset Security’ Term in Court
Alderoty expressed his concerns on social media platform X on September 2. He pointed out that “crypto asset security” doesn’t appear in any legal statute. “The term ‘crypto asset security’ is nowhere to be found in any statute — it’s a fabricated term with no legal basis,” he posted. Consequently, he urged the SEC to stop using this term in court.
The term has faced scrutiny before. In a recent legal battle between the SEC and the crypto exchange Kraken, the Federal Court for the Northern District of California also questioned the SEC’s use of “crypto asset security,” describing it as “unclear at best and confusing at worst.”
Alderoty Cites 1976 SEC Ruling to Challenge OpenSea’s Wells Notice
On August 29, Stuart Alderoty criticized the SEC’s Wells notice to the NFT marketplace OpenSea. The notice suggested that tokens sold on the platform might be unregistered securities. Basically, Alderoty pointed to a similar case from over 40 years ago. In that case, the SEC ruled that an art gallery did not need to register as a securities seller, even if buyers viewed the art as an investment.
Interestingly, in a letter shared by Alderoty, the Art Appraisers of America, acting on behalf of artist William Nelson, sought clarification from the SEC in the 1970s. Primarily, the gallery was concerned that selling lithographs and print drawings could be seen as selling unregistered securities. However, the SEC decided not to pursue enforcement actions in that case.
“In 1976, the SEC ruled that art galleries, even when promoting and selling to buyers with investment motives, didn’t need to register with the SEC,”
Alderoty noted.
Notably, the letter from the 1970s mentioned that the SEC’s decision was based on the specific facts of the case and that different circumstances might lead to a different conclusion. However, the SEC chose not to enforce registration requirements on the art gallery at the time.
