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The US Securities and Exchange Commission (SEC) has issued its response to the recent court ruling in its case against Ripple Labs, arguing that XRP is not a security when sold to retail investors.
Ripple’s comments were made in a separate filing in the SEC’s ongoing lawsuit against Terraform Labs and its founder, Do Kwon, over an alleged multibillion-dollar crypto-asset securities fraud.
According to the SEC, the decision violates fundamental principles of securities laws, such as the Howey test, a set of criteria that determine the nature of an investment contract:
“With respect to Programmatic sales and other sales, the SEC respectfully acknowledges that Ripple conflicts with and adds unreasonable demands to Howey and his successors. Respectfully, those portions of Ripple were misplaced and this Court should not follow them.”
The SEC files a response to the Do Kwon lawsuit, saying Judge Analisa Torres erred in it #XRP the decision and the agency is likely to appeal. Violator: “Ripple’s reasoning is impossible to comply with all these fundamental principles of securities laws.”
– Dave Michaels (@davidamichaels) July 21, 2023
Terraform Labs’ attempt to dismiss the lawsuit cited the Ripple Labs decision as a possible precedent. However, the SEC responded, expressing its disagreements with the XRP ruling and dismissing its case against Kwon.
“Ripple erroneously creates two different ‘reasonable investor’ standards — one for institutional investors and another for retail investors — but creating any such subjective dichotomy is inconsistent with Howey,” the SEC said. The commission further alleged that Ripple used “‘generally less sophisticated’ investors” to cast a subjective view on XRP as a security.
These statements come shortly after SEC Chairman Gary Gensler admitted his disappointment with the court ruling that XRP is not a security when sold to retail investors in a recent interview with Yahoo Finance:
“So the investing public comes first — that’s how our securities laws were originally written — the companies that raise money, and the markets also and really protect them and protect the integrity of the markets. But I am not in a position to go into any ongoing enforcement issues.”
Gensler was also asked whether the court’s rulings represented an urgent need to set clear rules for the industry, particularly during his speech on artificial intelligence at the National Press Club. However, Gensler chose not to give a specific answer.
SEC Chairman Gary Gensler Speaks on Ripple’s XRP Ruling for the First Time Since the Court’s Decision Last Weeks pic.twitter.com/0lOzJEDs1e
— Whale (@WhaleChart) July 17, 2023
“And while we’re disappointed by what they said about retail investors, we’re still looking at it and evaluating it.”