Ripple’s XRP: to be (security) or not to be (security)

Ripple, the company behind the XRP coin, has made it a point in the past to convince everyone it’s not a security. Brad Garlinghouse, the CEO of Ripple, has spoken about this issue multiple times. In a one interview to CNBC, when asked about a recent lawsuit from former XRP holders who sued Ripple claiming that it in fact is a security, had the following to say:

“Whether or not XRP is a security shall not be dictated by one lawsuit. The SEC is the governor of that. I think it is very clear that XRP is not a security. It exists independently of Ripple the company. If Ripple, the company shut down tomorrow, XRP will continue to exist.”

This sentiment has also been echoed by Ripple’s chief market strategist Cory Johnson. Mr. Johnson responded to questions if XRP should be regulated as a security by saying:

“We absolutely are not a security. We don’t meet the standards for what a security is based on the history of court law.”

As TheBlock explains, one of the lawsuits agains Ripple, Greenwald v. Ripple, was removed to federal court by Ripple but then remanded again earlier this fall. Ripple managed to remove he case a second time using the fact that Zakinov had been consolidated with another case as justification. As the Plaintiffs put it in their motion to remand:

“Despite this Court’s clear directive, Defendants again improperly removed the Greenwald Action to this Court pursuant to CAFA on November 7, 2018 after it was inadvertently, without motion practice, consolidated with the related action filed by Vlad Zakinov (“Zakinov”) and David Oconer (“Oconer”) asserting only non-removable state law claims on behalf of only California residents (hereinafter, the “State Law Action.”). Demonstrating their gamesmanship, Defendants removed this action and the State Law Action despite being told by plaintiff’s counsel in both cases that they believed the consolidation was in error and after being apprised of Greenwald’s forthcoming motion to deconsolidate. Defendants further refused to wait to remove these actions until after the state court judge could be apprised of plaintiffs’ concern that the consolidation was in error.”

Stephen Palley, renowned lawyer and author of this piece on TheBlock, illuminates further:

“Plaintiff argues (1) that the case should be remanded to allow the administrative consolidation to be challenged; (2) that the consolidation wasn’t a voluntary act by plaintiff making it removable under the Class Action Fairness Act; and (3) that the underlying operative complaint isn’t removable. While Defendants haven’t responded yet their argument is going to be that by consolidating Greenwald with removable lawsuits the State Court judge did something that created federal jurisdiction that didn’t previously exist.

What’s the deal over federal vs. state court? tl;dr — defendants like federal court better. “

This is essentially just postponing the verdict until Court unriddles the puzzle and, as Palley concludes, ” which courthouse people should be reporting to. “

Most lawmakers look back to the “The “Howey Test” when determining if something is a security or not. This test has been created by the Supreme Court for determining whether certain transactions qualify as “investment contracts.” If so, then under the Securities Act of 1933 and the Securities Exchange Act of 1934, those transactions are considered securities and therefore subject to certain disclosure and registration requirements.

Ripple has changed some of its critical statements from the past, according to The Block founder and CEO, Mike Dudas. Dudas did thorough research on the company, citing Ripple’s stance on key arguments related to the company and its cryptocurrency.

What say the SEC?

As XBT News writes, in June, the U.S. Securities and Exchanges Commission’s Director of Corporation Finance William Hinman said that Ethereum wasn’t a security for the simple reason that it is “sufficiently decentralized.” He added that together, Ethereum and Bitcoin were not securities.

And as recently as November 2018, the SEC chairman Jay Clayton said gave a few indicators as to what excluded an asset from being registered as security.

Speaking at Consensus Invest, Clayton said you’d have to look at “when a store of value becomes truly decentralized,” such that “not one person or group of people control its supply or control trading or they have access to asymmetric information.”

But a question on what the SEC thought of XRP drew no specific answer from the securities boss.

He did, however, say that issues regarding a specific token and whether the SEC deemed it a security or not weren’t easy and that the agency would need to have a lot of information to definitively declare its position on the matter.

Hinman also gave what we can consider as a more precise pointer to whether a coin is a security- he said we look at the token’s functional network and how it has grown.

He raised a few questions, part of the Howey Test, including if the coin’s promoter “raised an amount of funds in excess of what may be needed to establish a functional network.”

Another question would be if the promoter did raise excess funds, have they “indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise?”

And lastly, “does the promoter continue to expend funds from proceeds or operations to enhance the functionality and/or value of the system within which the tokens operate?”

These are pertinent questions and which could apply to statements made by Ripple execs.

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Julian Joseph Lehmann
1 Comment
  1. This is all made up BS as nothing you’ve said is what has been publically made available plus you need to go and have a good listen to the latest question and answer video by the CEO as all is explained in that video which is as accurate as can be. Thanks for the FUD but it’s all BS!

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