After the recent filing of summary judgment motions, a federal judge may be closer to deciding for the first time whether certain cryptocurrencies are securities and subject to regulation by the US Securities and Exchange Commission. On September 17, 2022, both the SEC and fintech firm Ripple filed for summary judgment asking Judge Analisa Torres to determine whether cryptocurrency XRP is a security.
The agency filed its lawsuit in December 2020, arguing that Ripple sold more than $1 billion in XRP without registering the tokens as securities, which would have required them to inform purchasers of the investment risk associated with XRP and the financial condition of Ripple.
XRP denies the tokens are securities, and several investors have decried the SEC's legal action as against their interest, saying last year that they lost billions of dollars after the suit prompted many exchanges to delist or halt the trading of XRP.
The SEC claims Ripple CEO Bradley Garlinghouse admitted that there was no regulatory uncertainty when it came to the SEC's oversight of the cryptocurrency market, pointing to a 2018 tweet in which he said “‘regulatory uncertainty' is just a euphemism for ‘we wish we could ignore SEC regulations.' . . . Defendants made a calculated decision to risk an SEC or private lawsuit in order to profit by over $2 billion and cannot now feign surprise that their day in court has come," the agency told the court.
Ripple, for its part, maintains that XRP coins do not meet the definition of an investment contract—and, therefore, a security—because there was never a contract between the company and its purchasers that laid out investment-related rights for the purchasers or post-transaction obligations on the company.
The SEC is trying to make an "open-ended assertion of jurisdiction" over all assets, including cryptocurrency, that it feels would benefit from registration, without proving that the elements of an investment contract are present, Ripple argued.
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