Will SEC vs Ripple Lawsuit decide the fate of crypto?

Ripple Lawsuit

Perhaps the most talked about case of any cryptocurrency with any country’s regulator agency, Ripple (XRP) vs SEC, have made enough sensations. However, still, it does not get enough attention. After all, its judgment can prove to be a defining turn for how the world would see the cryptocurrency and how their work will be changed forever?

So it’s not your fault if you have not known about the case yet. Here we have got you covered and brought you major incidents that happened, their chronology, their effects on the case, what’s going on at the moment, where are the odds lying, and what could be the future of this case and its after judgment. 

IN A NUTSHELL

On December 22, 2020, the United States Security and Exchange Commission had filed a lawsuit against blockchain-based technology company RippleNet.

The allegations made by the Commission were that the XRP, a token of the platform, is security as it fulfills the Howey test. But the company did not register it as security in the SEC and has traded with it worth approximately $2 billion. 

Ripple did not accept the allegation and retaliated against the SEC. The network said that the XRP does not come under the securities, so the trade made using it was not illegal. Also, RippleNet said that the SEC was biased and taking advantage of its authority. 

The case has been filed; the case has been going on since then and continues. 

Actions are taken by SEC and its effects on RippleNet and XRP

The allegations were detailed as the conduct of unregistered digital asset security worth $1.3 billion from the network, and $600 million were moved by its CEOs. So the filed lawsuit included charges against the company and both former and current CEOs, Christian Larsen and Brad Garlinghouse, respectively. 

The market mostly runs on sentiments, and the news of charges against the network by a government authority was enough to create a heavy blow to XRP and Ripple. The result soon started reflecting on XRP’s price. 

The price drop drastically minimized the value to half of what it was, and a massive market capitalization value had also been lost. Investors holding the XRP were facing tough times than anyone else as they were more exposed to it and experienced massive losses. 

Many crypto exchanges soon started delisting XRP from their platform, which followed more defamation of the network and the digital asset. Drop-in asset prices were obvious after the news broke out, but they recovered quickly.

 The price fell to $0.2 at the time of the announcement of a lawsuit in December 2020, but it recovered and reached $1.7 in April 2021. However, it is currently trading at approximately $0.8 but still not clear where it could lead in the future as nothing is clear about XRPs future position in the case. 

Allegations made by SEC on RippleNet and XRP in detail 

As the RippleNet said and it’s more of the fact that the SEC did not provide any prior notice or didn’t make any statement indicating any action against the network. 

SEC’s official complaint stated that the network CEO’s Christian Larsen and Brad Garlinghouse had financed the blockchain company illegally by raising capital through securities offering of unregistered digital assets. 

Total $1.3 billion of capital was raised by selling the tokens between the 2013 to 2020 time periods. 

The biggest concern was the SEC’s claim that this huge amount of money was considered illegal as it was generated by exchanging the token for market-making and labor services to promote the XRP sales. The Commission stated that the XRP should be registered as a security before the sales, and in case it failed to do so, it would be considered illegal, and so did the capital raised by its sales. 

Allegations of CEO Garlinghouse were that he publicly said that he was long XRP, but in reality, the Commission found that he was selling his assets and, by doing so, made a profit of $600 million. 

Ripple’s pushback and oppose to SEC 

The Ripple team took 39 days to respond legally after the SEC announcement. You may wonder what would be the company doing; surprisingly, it was battling the Commission on Twitter. It could be taken as the company might prioritize safeguarding its image first and bringing back the trust among investors. 

So many counter allegations were also put by Ripple against Commission from Brad Garlinghouse, stating that the SEC is attacking Ripple and the whole blockchain industry in the US. He even claimed that it’s targeting cryptocurrencies to benefit China. 

Same thoughts and sentiments were put on the blogs and websites. The online campaign and trying to protect the network’s image and XRP stayed for long until the actual legal response. 

ALSO READ: SHIB community would witness a billion tokens burn this week

Finally, Ripple responded, legally this time 

Ripple finally filed documents relevant to the case on January 29, 2021, consisting of answers and arguments against the agency’s allegations. The documents were 93 pages long, and it had four main arguments citing that XRP is not a security, and it also explained that the SEC made a mistake. 

Ripple first tried hard to prove that XRP is not a security and it’s not even an investment contract. Those things, if proven, would prevent the crypto from any action against it by the SEC as it is outside of its jurisdiction. 

Neither the network put an ICO nor it had used XRP by any means to raise money regarding the business operations. On top of that, the total sales made was less than 1% of the currency’s entire market, and that amount could not influence the price or investors. 

Ripple made another argument that the SEC was crossing its boundaries when it Claimed XRP to be a security. It said that before SEC’s lawsuit, no other authority or regulator marked or not even tried to push XRP to be marked as security. No one ever notified Ripple to do so in its long time of working.

Other claims made by the network that the currency has been designed is incompatible with securities regulation. In support of their argument, they presented the certification from the Department of Justice and the FinCEN that determined XRP as a virtual currency. Some global regulators also have that, including the UK, Japan and Singapore. 

Ripple made a serious counter allegation that SEC is intentionally targeting Ripple and XRP. It considers XRP as security and declares Bitcoin and Ethereum as non securities. The company claimed that there are a lot of similarities among all three projects and the other two are far more significant than XRP, so there is no point in taking action on the latter. 

The Ripple Network also alleged SEC of distorting the facts, and the complaint made by the agency does not show any actual situation. Its quotes and events are out of context and irrelevant. CEO Garlinghouse even said that he would prove the allegations made by regulators completely wrong throughout the case. 

What possibilities this case consists and where it could lead to

The case is still under proceedings and hence making statements about what could happen might be some hurry. But we can consider some facts, arguments and counter arguments made by both sides. 

It’s obvious that if the allegations of SEC turn out to be true, the CEOs should have to go through the legal procedures, and so will the network. But should have considered the other possibility as well if SEC turned out to be wrong. It can result in distrust of people in government authorities. 

However, countering the allegations of targeting only XRP, not BTC and ETH, the agency stated that the latter crypto assets were securities earlier. Still, with time they have transformed and turned into no securities. 

The current status of the case and hearings during the whole time, although made the side of XRP or RippleNet stronger than SEC. On many occasions, the agency failed to fulfill the court’s demands either of necessary documents or the documents that could support some of their allegations. 

Although we have already discussed that the result of the case will significantly impact a huge part of cryptocurrency space no matter if SEC wins or XRP. The experts and people keeping eyes on the case assumed the case should be closed and the decision to be made till April 2022. Keep an eye on the case and its proceedings if you are interested in crypto and want to see how its future could be, as this case might set a benchmark.