Seven months after its legal battle with the Securities and Exchange Commission, Ripple Labs is still struggling to prove that it did not sell unregistered securities. On December 22 in 2020, the U.S. regulator moved to sue Ripple in an ill-conceived enforcement action poised to become a defining cryptocurrency trial of the decade.
However, the past few months have seen a changing tide in favor of Ripple Labs with the most recent development being a move by Ripple Lab lawyers that fires a damaging salvo at the SEC’s case.
Fair Notice Defense
Throughout the pre-trial phase of the case, Ripple’s lawyers showed that the SEC denied fair notice not just on XRP, but cryptocurrencies in general. When Ripple filed an intention to present a fair notice defense, the SEC launched a series of desperate filings to stop Ripple. All their attempts failed. They knew that if this defense is permitted, then their trial case would be weakened severely.
In a letter sent by Ripple Lab lawyers to the presiding judge, Ripple Labs’ counsel referred back to a recent comment made by the SEC Commissioners Hester Peirce and Elad Roisman in a settled action case against Coinschedule.
Ripple Labs lawyers showcased how Peirce and Roisman were essentially SEC whistleblowers after admitting that the regulator fails to provide clear guidance and fair notice on digital assets. According to a comment by Roisman and Pierce, the SEC “did not explain which digital assets touted by Coinshedule were securities, an omission which is symptomatic of (SEC’s) reluctance to provide additional guidelines about how to determine whether a token is being sold as part of a securities offering…”
Lack of regulatory clarity
This lack of regulatory clarity by the SEC is pivotal to the case as Ripple Labs lawyers argue that the SEC’s move to sue Ripple after years of operations is reckless on the regulator’s part. What’s more, the inquiry into the statement by the two commissioners sinks the credibility of the SEC as well as invites a counter case that could place a spotlight on the regulator’s internal politics.
Furthermore, a now-infamous 2018 speech by William Hinman (a former SEC director of Corporation Finance) declared that Ethereum was not a security token even though the token was launched in an ICO similar to Ripple.
While the SEC disclaimed the speech noting that it only represented Hinman’s opinion, Ripple continues to fight for evidence that led up to the preparation of the speech.
If Hinman moves to confess that he realized his speech would be interpreted as market guidance, not only to Ripple Labs but also to the Ethereum foundation and the entire crypto space, this would expose the capricious nature of how the SEC provides fair notice especially for cryptocurrencies in general.
Conclusion: Win for Ripple Labs equals Win for cryptocurrencies
Regulatory clarity is a key challenge for cryptocurrencies and blockchain companies in general. As such, the SEC must be wary of the precedent it would set should it proceed with its lawsuit case against Ripple Labs. The recent move by Ripple lab lawyers shows that the company has become more confident that it will emerge victorious from this battle.
While some market analysts predict Ripple Lab’s win against the SEC could lead to a Ripple-like bull run, it would be interesting to see whether the Ripple SEC case is likely to bring the much-awaited regulatory clarity to the crypto space.