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John Martin 6 min read

XRP vs SEC: A Wild Ride

XRP vs SEC: A Wild Ride

On September 14, 2021, the U.S. Securities and Exchange Commission (SEC) published a document stating its meetings with representatives of SBI Holdings, FinHub, and CME Group.

According to this document published by the SEC in the framework of the case against Ripple, representatives of SBI Holdings (Ripple's main partner) and other companies held meetings with employees of the regulator from 2017 to 2019, at which the XRP token was discussed. The document does not say what exactly the representatives of the companies talked about with civil servants.

The SEC claims that the California blockchain company has been selling unregistered securities in the form of XRP tokens to retail investors for seven years.

The SEC said that during this period Ripple raised $1.3 billion.

What Happened

In February 2022, the law firm Perkins Coie, which provided advice to Ripple on the launch of the XRP token, published documents on interaction with the issuer of the cryptocurrency from 2012. It follows from the documents that before the release of XRP, lawyers did not classify the token as a security. However, Perkins Coie warned Ripple that representatives of the Securities and Exchange Commission (SEC) may give a different assessment of the token status.

The U.S. Securities and Exchange Commission filed charges against Ripple in late 2020. The regulator accused the company of selling unregistered securities under the guise of XRP tokens for 1.3 billion.

XRP is an internal token of Ripple, which is used for cross—border payments. Amid the accusations, many crypto exchanges decided to suspend XRP trading. This brought its price down to $0.17. On September 15, the altcoin is trading at $1.1.

In February, the parties were unable to settle the dispute in a pre-trial manner. The SEC insisted that Ripple's management was aware of the status of the XRP token even before its official launch. At the same time, the head of Ripple, Brad Garlinghouse, called the SEC's accusations "unsubstantiated" and stated that the regulator's actions are "a challenge to the entire US crypto industry."

On July 13, 2022, Ripple managed to win a tactical victory over the SEC in court — the Commission was denied the opportunity to keep secret the data on the speech of the former head of the SEC's company finance department, Bill Hinman. In 2018, at the Fintech Week conference, Hinman said that the ETH cryptocurrency is not a security. And this is a direct contradiction to the regulator's accusations against Ripple.

The XRP vs SEC lawsuit will be considered by the Federal Court of the Southern District of New York. The SEC accuses the defendants of violating the registration provisions of the Securities Act and demands an injunction against further sales, the return of all collected funds with compensation, and payment of civil fines. The price of XRP reacted to the news with a rapid drop.

What They Say in Ripple

Even before the actual filing, the company's top manager, Brad Garlinghouse, said that it was an attempt by outgoing SEC chairman Jay Clayton to "limit innovation in the bitcoin and Ethereum industry." In one of the documents, Ripple calls itself "the best alternative to bitcoin." In the same place, the company calls bitcoin and Ethereum "virtual currencies controlled by China."

In his opinion, Trump administration officials are finally trying to harm the industry. He expects more understanding from the Biden government he was one of the sponsors of his campaign.

Stuart Alderoti, Ripple's general counsel, again criticized the Securities and Exchange Commission (SEC) for its desire to control the entire cryptocurrency market.

In response to the accusation that "even if some people buy a token for investment purposes, you are in the securities industry," Alderoti replied: "Does every jeweler now book a one-way ticket to the "land of securities" because "part" of their clients "invest" in the oldest the product is gold?!"

Alderoti also said that the SEC is abusing its power:

The Securities and Exchange Commission is trying to expand its jurisdiction beyond securities, "telling the judges with a straight face that we are the government, so we must be right," he said.

"The SEC continues to relegate the CFTC to the kindergarten level. Their regulation with the help of a law enforcement strategy is to attack projects using various resources to expand their jurisdiction beyond the "securities", telling judges with a serious face that we are the government, so we are right."

In conclusion, Ripple's general counsel urged cryptocurrency-related enthusiasts to join forces to "protect the abuse of SEC powers."

What Will Happen to the XRP Token

XRP is a real-time gross settlement, currency exchange, and money transfer system developed by XRP. The system is built on an open source distributed Internet protocol, a consensus registry, and its own token called XRP. The main objective of the XRP system, launched in 2012, is to provide secure, instant, and almost free global financial transactions of any size without chargebacks.

XRP token has fallen heavily from the record $3.40 recorded on January 7, 2018. The cryptocurrency has fallen heavily ahead of the charges brought by the Securities and Exchange Commission against the blockchain company for conducting an unregistered securities offering in the United States.

According to Coingecko, at the time of publication, XRP is changing hands at a price of about $ 0.40.

The ongoing SEC investigation has had an impact on XRP token trading activity since its inception in December 2020. Several American crypto exchanges (for example, Coinbase) suspended trading in the coin, thereby limiting the growth of its price.

XRP analysis shows that the coin usually follows broader trends in the cryptocurrency markets. But if Ripple manages to achieve acceptable conditions during the settlement of the lawsuit, then the XRP token rate can overcome the $3 mark. With a favorable settlement of the dispute with the regulator, global financial organizations will again reach out to Ripple, which may now be afraid to enter into partnerships with a team in such a difficult situation.

Even with the most unsuccessful completion of the trial for Ripple, the coin is unlikely to sink below 0.6 in the long run, since by and large the negative effect of the SEC lawsuit has already been taken into account in the XRP rate. But the impact of a negative outcome on the value of the XRP token will depend on how tough the sanctions that can be imposed on Ripple will be.

XRP Prediction

A former official of the US Securities and Exchange Commission (SEC), Joseph Hall, predicted in the Thinking Crypto podcast that the trial with Ripple could drag on for more than one year. According to Hall, the completion of the trial should not be expected in 2022.

He claims that the trial will not be completed soon, because the parties are firmly rooted in their positions and will not make a deal. Hall himself supports the issuer of the XRP token in the dispute between the regulator and Ripple. According to the ex-official, the situation looks strange, since the Ripple network worked for years before it was noticed by the SEC and filed a lawsuit.

Summary

The SEC's more aggressive approach, calling certain tokens securities, is alarming the crypto community, as it may cause problems for the industry. Such a label causes strict requirements for investor protection. Crypto enthusiasts say that many of these restrictions are incompatible with digital assets.

Each such case of the SEC's collision with major players in the crypto market is indicative and allows us to understand what the regulation of this market will be in the next few years.

Many experts note positive dynamics in the XRP case, but also say that the process is likely to be delayed.




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