- The Securities and Exchange Commission is the financial regulatory body in the United States of America.
- The SEC had filed a lawsuit against Ripple stating that XRP, the cryptocurrency launched by Ripple, was a security and not a currency.
- The lawsuit has been going on for a while now and the dates keep being extended for hearings.
What do you need to know about the lawsuit?
In December 2020, the Securities and Exchange Commission filed a lawsuit against Ripple and several executives affiliated with the company. This lawsuit was filed by the SEC on the pretext that Ripple and its executives had allegedly raised over $1.3 billion by issuing an unregulated digital ‘security’.
The lawsuit alleges that the company and its executives raised funds beginning in 2013 by issuing digital assets known as XRP, which is Ripple’s cryptocurrency. The Securities and Exchange Commission alleges that the digital asset is an unregistered security. It alleges that the company had not registered the issue of XRP worldwide and in the United States of America, hence raising funds under false pretenses. Ripple had also allegedly issued XRP for non-cash considerations such as labor and marketing and advertising services. In addition to financing, the company’s operations, the SEC also alleges that one of Ripple’s executives sold XRP worth $600 million for personal financing.
The Securities and Exchange Commission therefore filed a lawsuit on the pretext that Ripple failed to register the issuance of XRP, thus violating federal laws.
What is the SEC’s stance?
The Securities and Exchange Commission states that the act of raising funds from the retail investors requires proper registration. In addition to this, registration is also required for enabling the asset to be listed on a secondary market. The SEC believes that Ripple failed to complete the necessary registrations which deprived investors of important details before investing in the asset. These details include Ripple’s business operations and long-term prospects and finance.
This registration of pertinent documents ensures the protection of the interests of the investors, particularly retailers. Thus, for all these reasons, the Securities and Exchange Commission is suing Ripple.
What are the recent updates?
August 31, 2021 was an important day for the lawsuit initiated by the Securities and Exchange Commission. The court had scheduled a phone call to hear arguments about the pending motion introduced by Ripple. Ripple filed a motion to compel the SEC to disclose pertinent internal documents withheld by the SEC. The Securities and Exchange commission had withheld the documents which allegedly contain discussions about the nature of XRP and Ethereum under the pretext that they are protected under the Deliberative Process Privilege.
The SEC argued that those documents are not related to the ongoing case as Ripple admitted that XRP is a unique asset. Thus, SEC’s perspective of other cryptocurrencies such as Ethereum are not applicable for interpretation for XRP. However, the judge ordered an in-camera review of some documents with minimal redactions. However, this was a major win for Ripple as the SEC was ordered to hand over the documents.
The judge further stated that if she found that the DPP rules were not applied correctly, she would ask for more documents. Both redacted and un-redacted documents were to be handed over by the SEC to the court for reviewing. The next date for the hearing was set for mid-September and the telephone conference was adjourned.
Needless to say, the court partly ruled in the favor of Ripple. To this decision, the investors sent XRP’s price flying to an intraday high of $1.2441. Investors’ optimism of winning the case was impacted positively as the court adjourned the hearing.
It will be long before the case further develops. Till then, we must wait and see what the parties do.