Skip to main content
Law Related

SEC vs. Ripple: A New Hope

By March 10, 2021No Comments


Hello, this is Attorney Jeremy Hogan and on today’s crypto Legal Briefs we are going to talk about a super important litigation strategy Ripple is going to implement and it’s a doozie.

Stay with me as I put the pieces of this puzzle together.  I promise as I conjecture as to what Ripple’s strategy is and why it’s a great strategy for XRP holders, I promise that I will not go into any tin-foil hat conspiracy theories.  As we all know, those silly tinfoil hats don’t work against the Lizard alien infiltrators.

As you might know, I only do a video on the Ripple litigation about once a week, unless something of note is filed, and I do that because I want to provide some insight – something more than you might read on Twitter or a news story – and that research takes some time and depth of research.  So I was looking at the Court filings again and some of the recent videos I’ve seen with Mr. Gensler and some other things, and I saw something that was kind of hiding In Plain Sight and if I’m right, which you know I always am, this is a good thing for XRP holders.

So let’s get to it.  Disclaimer: I am a lawyer but, unfortunately not your lawyer – because I never lose – kind of like this lawyer who also never loses and bonus points if you can name the movie. 

So, let’s begin with what the SEC regulates so you can understand what is going to happen.  The SEC has jurisdiction over the “Trading” of securities within the United States.  And trading entails only the buying and selling of securities – not the possession.

So because a security only comes under the SEC umbrella when it’s sold, it’s important to recognize that at each sale the designation as to whether something is a security or not can CHANGE.  Remember, for something to be a security you must buy something with the expectation that the person or company you buy it from will do something to increase the value.  For example, when you buy a “stock” from Apple, you expect that Apple will make new products, produce an Iphone that opens a can for you or whatever, and the value of your stock will go up BECAUSE of Apple’s efforts.  But if you turn around and sell your Apple stock to your brother – you have NOT sold a security because your brother isn’t looking to YOU to increase the value of the Apple company. Your brother knows what you were like as a teen – he’d never trust you like that.

So, to be clear, the SEC enforces “Sales” of things that are securities.  And, even more important for the Ripple lawsuit, what is or is not a security can even change over time depending on whether the buyer is looking to the seller to increase the value.  And even THAT can changes over time.  SO, when Ripple sold XRP back in 2014 for example – IF the buyers bought XRP and were primarily relying on Ripple to increase the value of XRP – then it was likely a security.   But in the Crypto-currency world generally and with Ripple specifically, the analysis changes quickly as the use cases for the assets are actually built out. SO that the XRP that Ripple sold in 2014 might have been the sale of a security BUT the XRP Ripple sold in 2018 might NOT have been the sale of a security.  It DEPENDS on whether Ripple was the driver of XRP value at the time of the sale.  

And this is the KEY for what I’m about to tell you about in the 2nd half of this video but listen, don’t take it from me – here is SEC Commissioner Pierce saying the same thing in a much more intelligent way:

That’s from a recent interview on the Thinking Crypto channel – link below.

So, an XRP token cannot inherently be a security – it’s the sale or “offering” of something that makes it a  “sale of a security” subject to SEC regulation.  And now that we understand that, let’s look at what I think Ripple is going to do with this lawsuit.

What tipped me off was looking at the initial Pre-trial letter to the Judge again.  I read it again and I swear sometimes I surprise myself how poorly I read things.  At the conclusion of the letter when Ripple is wrapping up its case it says THIS  – pay close attention:

“Accordingly, Ripple’s ongoing sales of XRP cannot be considered a securities offering. It is crucial that this Court adjudicate this issue promptly. The SEC’s Complaint asks this Court to bar Ripple permanently from “delivering XRP to any persons” or otherwise “participating in any offering of digital asset securities.”

The key word here is “ongoing” “ongoing sales of securities.  That’s what Ripple is talking about what it is says is critical when it later says:

 “Ripple proposed and agreed to a rapid discovery schedule in this case to enable Ripple to file a motion for summary judgment as soon as possible.”

As you may know, summary judgment is a request that a Judge make a determination of a case as a matter of law.  A request for summary judgment has to be addressed a identifiable part of the complaint OR affirmative defense.  And look at something else I missed the first time around – Ripples Affirmative Defense number three:

“The relief requested (by the SEC) in the Complaint is inappropriate in whole or part because the Complaint fails to allege a reasonable likelihood of future violations by Ripple.”

FUTURE violations …FUTURE sales.  So there it is, Ripple is addressing current and future sales of its escrowed XRP when it is asking for a fast determination by the Judge and it added in Affirmative Defense No. 3 talking about any future sales because Ripple is going to move for Summary Judgment FIRST as to its current and future sales of XRP ONLY and NOT on the past sales.  And they want to do it quickly.

But wait, can they do that?  You might be asking and for that we turn to the Federal Rules of Civil Procedure:

“A party may move for summary judgment, identifying each claim or defense — or the part of each claim or defense — on which summary judgment is sought.”   And when can they file it?  “…a party may file a motion for summary judgment at any time until 30 days after the close of all discovery.”  Which for the Ripple case means they can file it ANYTIME they want from now up until sometime in September after discovery is closed.  They could file tomorrow if they wanted.

So, my spidey sense is tingling and it won’t happen for a while still, but Ripple is going to file for Partial Summary Judgment as to current/future offerings of XRP and why is that so important for you?  Because the strength of Ripple’s case is exponentially greater in summer 2021 than it was in say 2014 or 2015 and by moving for this partial summary Judgment on its Third affirmative defense and winning – you all get the clarity you are looking for moving forward – Boom.  And the rest of the case?  It gets determined at some point afterward but that part of the case is about money – about disgorgement of profits from the sales but the MAIN EVENT – whether Ripple can continue its business is determined with finality.

And I will leave it to others like Attorney John Deaton to make argument about Ripple’s current use cases, the current uses of XRP, how decentralized it all is now but recently Attorney Deaton asked for how you are using XRP yourself on Twitter and … look at the responses!

Some there;s some thing people are doing with XRP right now I don’t even understand!  How long would this list have been in 2014?  (crickets)  AND if you still don’t believe that 8 years is a game changer in the SEC-crypto regulatory world let’s listen to the new SEC commissioner explain how big a deal 4 years is much less 8 years:

So, as you can see “designations” definitely change and in the crypto world, it is a change towards non-security status.

Now, the SEC attorneys are not dumb.  They are going to know that it’s arguing about Ripples escrowed future sales that they are weakest.  So, the SEC’s position is going to be that ALL of Ripple’s sales, even the sales from escrow, should be treated as one big SALES OFFERING that extended from 2013-2021.  The SEC will break out the Kik Interactive judgment for its position because Kik did have two separate sales which were treated as one “offering”.  Kik tried to argue that it had made two separate sales but lost.  Why did they lose?  Let’s take a quick look at the judgment:

“The sales also took place at about the same time. The Pre-Sale ended the day before the TDE sale began,…”

Kik was found to have made one single “offering” in part because the second sale took place THE DAY AFTER  the first.   

With the Ripple case, the SEC is going to have to argue that Ripples extensive and numerous sales AND sales from escrow over an EIGHT YEAR PERIOD were all somehow one big never-ending sale.   Good luck with that argument –  I DON’T envy the SEC attorney that has to argue that one.

And finally, who does Ripple have to thank for being able to get in on partial summary judgment with these enviable facts?  None other than former SEC chair Jay Clayton.  If he had filed this lawsuit back in 2018, Ripple would have been in a much more difficult spot.  So maybe we should all take it easy on the guy.  I will be collecting XRP to buy Mr. Clayton flowers – or maybe I’ll send him some Bitcoin.

In any case, thanks for watching and remember, life is funny, sometime the person you think  has hurt you most has really only made you stronger.

Leave a Reply