Former SEC official John Reed Stark spoke out against the latest ruling in the Ripple Lab case, Connection The decision is “disturbing on several fronts,” per a LinkedIn analysis.
Stark broke Judge Annalisa Torres’ decision as of July 13 by examining the grounds on which she ruled in favor of Ripple in a lawsuit filed by the SEC in 2020, alleging that the company’s XRP (XRP) token was a security.
Some thoughts on the SEC/Ripple decision. https://t.co/A94kHlGI9N pic.twitter.com/lcwWML49kO
John ReedStark July 14, 2023
Judge Torres’ ruling states that the XRP token was a security when it was sold to institutional investors, but it was not a security in “automated sales” (public sales) and “other types of sales,” such as distributing tokens to employees. Ripple also faces a penalty for the alleged breach, as well as a revocation of the institutional investors — who reportedly had $720 million in sales.
In the decision, Judge Torres argued that institutional investors “reasonably expected Ripple to use the capital it received from its sales to improve the XRP system and thereby increase the price of XRP,” while investors who used exchanges to purchase XRP tokens “could not reasonably expect the same.”
For Stark, the decision creates a “class of quasi-securities that differentiate” based on the complexity of the investor’s purchase of the token.
The Ripple decision states that the same exact token can be a security at times but not a security at other times. The greater the ignorance and willful blindness on the part of retail investors, the less protection retail investors will receive. Less liability for the token issuer. That can’t be right.”
Stark also notes that this argument seems to contravene the Investor Protection Principles, which state that an investor’s level of protection should not be affected by whether he or she reads material about buying an asset. Stark noted, “Securities laws are specifically designed to protect individual investors, based on the idea that they cannot defend themselves (…). Ripple’s decision turns that notion on its head.”
In the view of Stark, who worked as an attorney for more than 18 years in the SEC’s enforcement division, “the decision is on shaky ground, likely (and ready) to be appealed, and likely to result in reversal.”
Bottom line: stock is always stock – it cannot be converted into “not stock.” So my opinion is that the SEC will appeal the Ripple decision to the 2nd Circuit and the 2nd Circuit will overturn the District Court’s decisions regarding “software” and “sales.” other “”.
The crypto community and Ripple greeted Judge Torres’ ruling as a victory. The company’s CEO Brad Garlinghouse said during a recent interview that the SEC may face a lengthy process before it has a chance to appeal the decision. In addition, Garlinghouse called the institutional sale decision the “smallest part” of the lawsuit, and said that the SEC’s appeal against the retail ruling would only strengthen Torres’ ruling.
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