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The summary judgment decision in the SEC v. Ripple lawsuit has been stirring reactions from top legal experts even though the ruling was issued five months ago.
In an interesting development, J.W. Verret, an associate professor of law at George Mason University, has become the latest legal expert to comment on the landmark ruling in the SEC v. Ripple lawsuit.
A Roadmap for Crypto Companies
In a recent op-ed piece, Verret emphasized that the Ripple ruling could serve as a roadmap for other crypto companies.
Law Professor @JWVerret writes Judge Torres laid out a "@Ripple roadmap" which makes clear that the "broad brush" from Congress is "not so broad that the @SECGov can make up facts and circumstances that don’t exist." Read it here👇https://t.co/nidMFThg8r
— CryptoLaw (@CryptoLawUS) December 11, 2023
According to the legal expert, Judge Analisa Torres, the ruling judge of the lawsuit, carefully highlighted the significance of facts and circumstances in crypto sales under existing securities law.
He stated that the verdict recognized the uniqueness of digital asset trading while effectively applying existing securities law, especially the Howey case.
For clarity, the Howey case of 1946 established a legal test determining the transaction that constitutes a security.
SEC Failed Attempt to Bypass Howey
Per Verret, the Securities and Exchange Commission attempted to bypass the application of the Howey test in the Ripple case by establishing an alternative fact without citing any legal precedent to support its argument.
Notably, the SEC claimed that XRP in itself is a digital asset security in its very nature. In addition, the commission argued that all XRP sales satisfy the various prongs of Howey, thus making these transactions investment contracts in Ripple.
Contrary to the SEC’s claim, Judge Torres reaffirmed that facts and circumstances are relevant in specific offers and sales in Howey’s analysis, irrespective of the asset’s underlying technology.
Recall that the SEC initially claimed that Ripple’s institutional XRP sales, programmatic XRP sales on digital exchanges, and other distributions are investment contracts.
While the Judge affirmed that Ripple violated the law via its XRP sales to institutional investors, she ruled that programmatic sales are executed on digital exchanges via blind bid/ask transactions between unknown parties.
The judge backed her decision by citing 3K affidavits submitted by XRP holders who claimed they knew nothing about Ripple’s existence when they purchased the coin on digital exchanges. Hence, she concluded that programmatic sales of XRP are not securities, as alleged by the SEC.
SEC Can’t Make Up Non-Existing Facts
While SEC chair Gary Gensler claims that Congress gave the commission a broad brush to apply the Howey test, Verret said the Ripple ruling clarifies that the brush is not too wide to allow the regulator to make up non-existing facts and circumstances to justify its arguments.
He asserted that the Ripple decision could serve as “a template for rules that adapt to the unique needs of crypto asset owners” like the SEC established multiple rules in the past.