"partial" win!? It's hard to see what would be a "win" otherwise... It's going to have also larger implications - the SEC somehow manages to lose that one, it was hard to imagine or predict. If not even XRP is a security, there is truly no other coins which could be a security. Hate it or love it, but the SEC is simply going to lose all their other lawsuits
EDIT: oh funny ... Reuters edited their title and removed "partial" :-)
> "partial" win!? It's hard to see what would be a "win" otherwise... It's going to have also larger implications - the SEC somehow manages to lose that one, it was hard to imagine or predict. If not even XRP is a security, there is truly no other coins which could be a security.
This is explained in the article. It was good day for this crypto scam, but it wasn't all good news for them:
> The ruling was also a partial victory for the SEC. The judge held that Ripple violated federal securities law by selling XRP directly to sophisticated investors, and that a trial should be held over its executives' role in those sales.
Also:
> Hate it or love it, but the SEC is simply going to lose all their other lawsuits
Quite a bold statement there, based on a single ruling...
If this stands it clears Ripple, but not necessarily the exchanges (footnote 16 in page 23). If SEC gets that one, that would be enough of a win for them - without the offramps, these coins wouldn't survive.
Forgive me, I know little about crypto, and am bearish on it, but:
My understanding is that Ripple was very much meant to be a currency/commodity, unambiguously, where most other crypto backed by whitepapers were meant to be securities on the basis that they were meant to back some hare-brained scheme or have some utility beyond simply being a means of transfer. If I'm right about that, then surely Ripple has one of the strongest arguments for not being a security?
- Ripple's sales of XRP to institutional buyers were investment contracts, but
- programmatic sales via an anonymous exchange were not.
The ruling emphasises the distinction between an asset and an investment contract. An orange grove isn't an investment contract. The sale of an orange grove may or may not be an investment contract. Determining whether or not is governed by the Howie test.
> The sale of an orange grove may or may not be an investment contract. Determining whether or not is governed by the Howie test.
I liked the era when people vaguely claimed that their coins weren’t a security because securities need to be registered. It had an “I’m not an alcoholic, alcoholics go to meetings” flare to it. I tried to get in on the fun with a vaporware cryptocurrency, OrangeGroveCoin. It got a disturbing amount of investment interest.
The SEC should've left crypto alone. Instead of crypto getting destroyed by the SEC, now it looks like the SEC might get destroyed by the judicial branch if they choose to go up the chain with this case. This SCOTUS is massively unfavorable toward the executive making up rules to enforce, or taking liberties with interpreting standing law. If it gets there I imagine a 6-3 Alito opinion gutting the SEC's wiggle room in defining a 'security' and enforcement reach.
And with the deep pockets of the crypto puppet masters and all the evidence coming out about the Justice’s susceptibility to taking as many “gifts” as they can get their hands on, that just further solidifies the pre-determined outcome.
Great day for crypto and for financial freedom in general. Great to see the justice system finally rebuking these unelected bureaucrats and placing some limits on the power they claim to have.
The unelected bureaucrats are authorized by duly elected politicians. They do not coalesce in office from the ether, they're put there by elected officials. It's not like there's no oversight.
Looks like the crypto critics are now confused and have gone silent again after the Bitcoin leveraged ETFs getting approved and now they got this one wrong again. Just for the ones at the back, it is absolutely NOT the SEC that determines what is and what isn't a security and the SEC does NOT get the final say, which this summary judgement has already shown.
But of course complain all you want, but there was a reason why the SEC did not want the Hinman documents unsealed (whilst everyone else was screaming at another hysteria around Coinbase in [0]) and the SEC attempted to request those documents to be sealed and that was denied as well. [1]
> But Torres ruled Ripple's XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple's efforts.
> Those sales were "blind bid/ask transactions," she said, where the buyers "could not have known if their payments of money went to Ripple, or any other seller of XRP."
I bet this gets overturned on appeal. It makes no sense to me. Seems like a huge loophole if it stands. Maybe it's explained better in the actual ruling, anyone have a link? Of course you can count on Reuters to never link to important information.
Not really, unless XRP is a share of a company (it's not) and promises dividends (it doesn't), there's no expectation of profit by purchasers of XRP.
Profits from speculation is not the same as profits from business activities. People purchase everything from bar codes (yes, 11 digit bar codes are a commodity with limited supply), to trailers, to collectible video games, to oil and minerals, precious metals, art, antiques, etc etc all on speculation that they'll be worth more in the future.
The judge referenced the Howey case, saying that just because you have an investment contract involving an orange grove, that doesn't mean the orange grove itself is a security. A security is a contract, not just anything that people trade around in a speculative way.
>>Maybe it's explained better in the actual ruling, anyone have a link?
The docket[1] has the ruling[2], but there's very little additional detail provided beyond the focus on "blind transactions" to invalidate one of the Howey prongs[3].
As an aside, thank goodness for Court Listener and the RECAP/PACER archive!
This is IMO rather odd logic. I skimmed the opinion. If identical logic were applied to ordinary stock shares, it seems like it’s saying that shares in a C corp are securities if the C corp sells them to institutional investors, but that if the C corp sells the same shares by putting limit orders on a stock exchange (NASDAQ, for example) and Reddit-reading meme stock buyers buy them, then somehow the C corp didn’t actually engage in a sale of securities.
The holder of a stock certificate has a formal legal contractual relationship with the corporation that issued the stock. The holder of a token does not have a contractual relationship with the entity that issued the token.
Now there's probably some silliness in the fact that if Alice creates a token and sells it to Bob, it's an investment contract, but if Alice creates a token sells it to Mark the middleman who then sells it to Bob it's not an investment contract and therefore not covered by the SEC. But this really comes down to how Federalist society wing of judges have changed Constitutional law.
Up until about 20 years ago, if Congress passed a law that wasn't very well defined or left a loophole open, courts were generally willing to consider the original intent of the lawmakers and interpret the law relative in a commonsense way even if it went against the specific language used by Congress. Federalist Society judges would argue that courts should generally only apply the law as it's actually written (i.e. an investment contract requires an actual legal contract). The argument is that Congress is around and still exists and perfectly free and able to update the existing laws if they're unhappy with the wording or oversight of previous legislation.
This is a fundamental disagreement in Constitutional law. Should courts use commonsense interpretation of the meaning of the laws or should Congress itself, as the actual elected representative, be responsible for updating laws and courts just enforce the plain meaning. It's also tinted by the fact that Congress today has become hopelessly gridlocked and obstructionist, and we're largely incapable of passing sweeping legislation. So generally if you're not a fan of big government or regulation, you're going to be biased towards one view and vice versa.
I had a similar thought at first but then read the actual ruling and it made more sense and it all stems on the 3rd prong of the Howie Test. It states there needs to be a "reasonable expectation of profits derived from the managerial efforts of others" which a share of stock has via dividends, etc. regardless how it was acquired.
For XRP, there is no explicit rights to profits via the efforts of others via the instrument so you then have to look at the agreement made via the contract between the purchaser and the issuer.
On page 18 of the ruling it outlines this for Institutional Investors:
'''The third prong of Howey examines whether the economic reality surrounding Ripple’s Institutional Sales led the Institutional Buyers to have “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”... Based on the totality of circumstances, the Court finds that reasonable investors, situated in the position of the Institutional Buyers, would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts. '''
However for "Programmatic Buyers" on exchange the ruling said:
'''Having considered the economic reality of the Programmatic Sales, the Court concludes that the undisputed record does not establish the third Howey prong. Whereas the Institutional Buyers reasonably expected that Ripple would use the capital it received from its sales to improve the XRP ecosystem and thereby increase the price of XRP, Programmatic Buyers could not reasonably expect the same.'''
So because there is both no expectation of profits tied to the managerial efforts of others, nor from the contract made by a buyer on exchange, the court ruled the 3rd prong does not apply. Stocks fail the first part of this.
Not at all. The shares in a C-corp are securities because they will definitely pass the Howey Test. Also, stocks are considered securities by a statute. It is unclear whether XRP tokens themselves pass the Howey test. (I believe the Howey Test is extremely outdated and needs to be revamped, but that's a different topic.)
>>[...] what changes should we expect to see in the short term?
The article mentions that since the company definitively sold unregistered securities to hedge funds and sophisticated buyers (without registering with the SEC), a jury will now/soon need to "decide whether or not Garlinghouse or Larson aided in the company's violation of the law."
Seems pretty clear cut that the company, and it's executives, will have further problems to tackle in the near future.
>>This is supposed to be pretty huge.
This could become much bigger if the SEC uses this enforcement as an example reference case for future actions against other token projects that followed a similar playbook over the past several years, assuming the case is kicked further up the court hierarchy on appeal.
Many ICOs done in the US followed similar but even more refined legal rational
and it doesnt really matter if institutional sales are unregistered securities because there are many registration exemptions to rely upon for sales to institutional
[+] [-] WinstonSmith84|2 years ago|reply
EDIT: oh funny ... Reuters edited their title and removed "partial" :-)
[+] [-] JeremyNT|2 years ago|reply
This is explained in the article. It was good day for this crypto scam, but it wasn't all good news for them:
> The ruling was also a partial victory for the SEC. The judge held that Ripple violated federal securities law by selling XRP directly to sophisticated investors, and that a trial should be held over its executives' role in those sales.
Also:
> Hate it or love it, but the SEC is simply going to lose all their other lawsuits
Quite a bold statement there, based on a single ruling...
[+] [-] linuxftw|2 years ago|reply
[+] [-] choppaface|2 years ago|reply
It would probably have been a bigger win for Ripple had they gotten out of that one.
[+] [-] yyyk|2 years ago|reply
[+] [-] petesergeant|2 years ago|reply
Forgive me, I know little about crypto, and am bearish on it, but:
My understanding is that Ripple was very much meant to be a currency/commodity, unambiguously, where most other crypto backed by whitepapers were meant to be securities on the basis that they were meant to back some hare-brained scheme or have some utility beyond simply being a means of transfer. If I'm right about that, then surely Ripple has one of the strongest arguments for not being a security?
[+] [-] rahimnathwani|2 years ago|reply
The court ruled that:
- Ripple's sales of XRP to institutional buyers were investment contracts, but
- programmatic sales via an anonymous exchange were not.
The ruling emphasises the distinction between an asset and an investment contract. An orange grove isn't an investment contract. The sale of an orange grove may or may not be an investment contract. Determining whether or not is governed by the Howie test.
If ChatGPT is to be believed (ha!), secondary sales of common stocks are not investment contracts: https://chat.openai.com/share/d3865e23-9210-4977-bda5-b4ded8...
If you don't want to read the whole ruling, look at pages 13-15 and 22-24.
[+] [-] travisjungroth|2 years ago|reply
I liked the era when people vaguely claimed that their coins weren’t a security because securities need to be registered. It had an “I’m not an alcoholic, alcoholics go to meetings” flare to it. I tried to get in on the fun with a vaporware cryptocurrency, OrangeGroveCoin. It got a disturbing amount of investment interest.
[+] [-] shrimpx|2 years ago|reply
[+] [-] constantly|2 years ago|reply
[+] [-] glerk|2 years ago|reply
[+] [-] burnte|2 years ago|reply
[+] [-] choppaface|2 years ago|reply
[+] [-] rvz|2 years ago|reply
But of course complain all you want, but there was a reason why the SEC did not want the Hinman documents unsealed (whilst everyone else was screaming at another hysteria around Coinbase in [0]) and the SEC attempted to request those documents to be sealed and that was denied as well. [1]
[0] https://news.ycombinator.com/item?id=36302231
[1] https://news.ycombinator.com/item?id=36306757
[+] [-] eric_cc|2 years ago|reply
[+] [-] modeless|2 years ago|reply
> Those sales were "blind bid/ask transactions," she said, where the buyers "could not have known if their payments of money went to Ripple, or any other seller of XRP."
I bet this gets overturned on appeal. It makes no sense to me. Seems like a huge loophole if it stands. Maybe it's explained better in the actual ruling, anyone have a link? Of course you can count on Reuters to never link to important information.
[+] [-] chrisco255|2 years ago|reply
Profits from speculation is not the same as profits from business activities. People purchase everything from bar codes (yes, 11 digit bar codes are a commodity with limited supply), to trailers, to collectible video games, to oil and minerals, precious metals, art, antiques, etc etc all on speculation that they'll be worth more in the future.
[+] [-] DennisP|2 years ago|reply
William Hinman of the SEC said much the same thing in 2018: https://www.sec.gov/news/speech/speech-hinman-061418
[+] [-] otoburb|2 years ago|reply
The docket[1] has the ruling[2], but there's very little additional detail provided beyond the focus on "blind transactions" to invalidate one of the Howey prongs[3].
As an aside, thank goodness for Court Listener and the RECAP/PACER archive!
[1] https://www.courtlistener.com/docket/19857399/securities-and...
[2] https://www.courtlistener.com/docket/19857399/874/securities...
[3] https://www.sec.gov/corpfin/framework-investment-contract-an...
[+] [-] amluto|2 years ago|reply
[+] [-] dcolkitt|2 years ago|reply
Now there's probably some silliness in the fact that if Alice creates a token and sells it to Bob, it's an investment contract, but if Alice creates a token sells it to Mark the middleman who then sells it to Bob it's not an investment contract and therefore not covered by the SEC. But this really comes down to how Federalist society wing of judges have changed Constitutional law.
Up until about 20 years ago, if Congress passed a law that wasn't very well defined or left a loophole open, courts were generally willing to consider the original intent of the lawmakers and interpret the law relative in a commonsense way even if it went against the specific language used by Congress. Federalist Society judges would argue that courts should generally only apply the law as it's actually written (i.e. an investment contract requires an actual legal contract). The argument is that Congress is around and still exists and perfectly free and able to update the existing laws if they're unhappy with the wording or oversight of previous legislation.
This is a fundamental disagreement in Constitutional law. Should courts use commonsense interpretation of the meaning of the laws or should Congress itself, as the actual elected representative, be responsible for updating laws and courts just enforce the plain meaning. It's also tinted by the fact that Congress today has become hopelessly gridlocked and obstructionist, and we're largely incapable of passing sweeping legislation. So generally if you're not a fan of big government or regulation, you're going to be biased towards one view and vice versa.
[+] [-] detroitcoder|2 years ago|reply
For XRP, there is no explicit rights to profits via the efforts of others via the instrument so you then have to look at the agreement made via the contract between the purchaser and the issuer.
On page 18 of the ruling it outlines this for Institutional Investors:
'''The third prong of Howey examines whether the economic reality surrounding Ripple’s Institutional Sales led the Institutional Buyers to have “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”... Based on the totality of circumstances, the Court finds that reasonable investors, situated in the position of the Institutional Buyers, would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts. '''
However for "Programmatic Buyers" on exchange the ruling said:
'''Having considered the economic reality of the Programmatic Sales, the Court concludes that the undisputed record does not establish the third Howey prong. Whereas the Institutional Buyers reasonably expected that Ripple would use the capital it received from its sales to improve the XRP ecosystem and thereby increase the price of XRP, Programmatic Buyers could not reasonably expect the same.'''
So because there is both no expectation of profits tied to the managerial efforts of others, nor from the contract made by a buyer on exchange, the court ruled the 3rd prong does not apply. Stocks fail the first part of this.
[+] [-] raingrove|2 years ago|reply
[+] [-] coolestguy|2 years ago|reply
Then don't comment on it
[+] [-] monero-xmr|2 years ago|reply
[+] [-] Scoundreller|2 years ago|reply
[+] [-] nonethewiser|2 years ago|reply
[+] [-] otoburb|2 years ago|reply
The article mentions that since the company definitively sold unregistered securities to hedge funds and sophisticated buyers (without registering with the SEC), a jury will now/soon need to "decide whether or not Garlinghouse or Larson aided in the company's violation of the law."
Seems pretty clear cut that the company, and it's executives, will have further problems to tackle in the near future.
>>This is supposed to be pretty huge.
This could become much bigger if the SEC uses this enforcement as an example reference case for future actions against other token projects that followed a similar playbook over the past several years, assuming the case is kicked further up the court hierarchy on appeal.
[+] [-] yieldcrv|2 years ago|reply
and it doesnt really matter if institutional sales are unregistered securities because there are many registration exemptions to rely upon for sales to institutional
[+] [-] 1vuio0pswjnm7|2 years ago|reply
https://storage.courtlistener.com/recap/gov.uscourts.nysd.55...
[+] [-] unknown|2 years ago|reply
[deleted]
[+] [-] yieldcrv|2 years ago|reply
I wouldn't even appeal to the appellate court if I were them, if they want to even exist after the subsequent round
I think we got this in the bag ya’ll
[+] [-] nobrains|2 years ago|reply
[+] [-] wonderwonder|2 years ago|reply
[+] [-] scaramuch|2 years ago|reply
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[+] [-] WhereIsTheTruth|2 years ago|reply
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[+] [-] scottiebarnes|2 years ago|reply
[+] [-] WhereIsTheTruth|2 years ago|reply
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[+] [-] choppaface|2 years ago|reply
[+] [-] fallingknife|2 years ago|reply