Gary Gensler, the United States Securities and Exchange Commission (SEC) chair, has expressed mixed reactions towards the court decision in the long-running legal fight with Ripple Labs over the legal status of the XRP token.
Speaking at National Press Club Headliners Luncheon on Monday, July 17, Gary Gensler said that while the federal agency was “pleased” with the ruling regarding the institutional sales, they were disappointed with how the court treated the retail investors. Therefore, the agency is looking at and assessing the court ruling over the XRP sales to retail investors.
In response to a question about the case, he said they are pleased with the decision to recognize the importance of protecting institutional investors and the pushback against Ripple’s fair notice argument. He added:
“We are disappointed with what they said about retail investors. We are still looking at it and assessing that opinion.”
Regardless of the decision, Gensler said that the mission to bring the crypto industry into compliance would remain undeterred, and the regulator would not step back from its enforcement actions to maintain the “industry’s integrity.” However, he declined to comment on the potential approval of a spot Bitcoin ETF.
Ripple vs SEC: Who Won?
The saga between Ripple Labs, the blockchain technology firm behind the XRP token, and the US SEC began in 2020 when the company and its executive were accused of raising $1.3 billions through the sale of the unregistered security token XRP.
Ripple always maintained in its defence that XRP is not security. As reported, a New York judge last week ruled that XRP, as a digital token, in and of itself is not a security. Per the ruling, some transactions involving XRP, such as direct sales to institutional investors, were indeed investment contracts, a.k.a securities. In contrast, the sales on the secondary market and other distributions don’t satisfy all the prongs of the Howey test.
The crypto community and the Ripple army declare it a victory for the XRP as it has freed the token from the security label. In a recent Bloomberg interview, Ripple CEO Brad Garlinghouse said that an SEC appeal to the decision would only solidify the current ruling.
However, many in the legal community believe that SEC will surely appeal the decision, and this differential ruling could be overturned as it resides on shaky grounds. In a LinkedIn Post, former official in the regulator, John Reed Stark, said that the Ripple decision is troublesome on many fronts. The distinction between institutional and public sales doesn’t make sense.
Former SEC official John Reed Stark said that the XRP decision resides on shaky ground, the SEC is likely for appeal and will likely result in reversal. The Ripple Decision holds that the same exact token can be a security sometimes but not a security other times. Read more:…
— Wu Blockchain (@WuBlockchain) July 16, 2023
He wrote:
“In other words, retail investors are typically stupid, so the court refused to presume that retail investors had the expectation that they would derive profits from Ripple’s efforts. This seems not only patronizing but just plain insulting.”
The bottom line is that, for the time being, Ripple Labs has scored a major victory over the regulator. However, this decision is a summary judgement and carries the possibility of being overturned.
