Of the many matters overseen by the U.S. Securities and Exchange Commission (SEC), regulatory efforts aimed at cryptocurrency have given rise to some of the agency’s perhaps most boggling determinations. That was made clear in a recent discovery hearing in the U.S. District Court for the Southern District of New York.
Judge orders SEC to provide documents to Ripple
An illogical premise seems to be at the heart of the SEC’s lawsuit against Ripple, a major fintech and digital currency firm based in San Francisco. According to the SEC, Ripple’s digital currency, XRP, has been illegally traded as an unregistered security since 2013. However, the SEC didn’t make that regulatory determination until December 2020 — incidentally, on the same day that the former SEC chair left his position.
Essentially, the SEC is claiming that Ripple and its millions of retail holders should have been aware that XRP was an unregistered security, even if the SEC had not made that determination and had in fact made contradictory statements about such cryptocurrency determinations over the years.
Magistrate Judge Sarah Netburn recently ordered the SEC to produce all communications regarding XRP that involved a third party, as well as internal documents that express the SEC’s “interpretation or views” on cryptocurrency. These are to be turned over to Ripple, per the company’s request.
The case lays bare this reality in securities law: the 1933 Securities Act does not address cryptocurrency, and in the absence of further clarification from Congress, the SEC’s interpretations and regulatory efforts in these matters will continue to be based on ambiguity of statute.
A number of overreaching lawsuits filed by the SEC have lately hit rough patches, to say the least. (One example: the ongoing feud involving one of our clients, an investor and former government informant who has been sued yet again by the SEC.)
If your business interests involve cryptocurrency or fintech and you have concerns about civil or criminal exposure, please contact the attorneys at Ford O’Brien Landy. We advise and represent clients in New York and Nationwide.
Source: Forbes, “In The Ripple Case, The SEC Is Now On Trial — And Knows It,” April 8, 2021