Ripple vs SEC Case: Closure coming sooner than expected?

Ripple vs SEC

TL;DR Breakdown

  • Ripple files its redacted reply to the SEC’s opposition to summary judgment. 
  • Court to decide soon if XRP is a security.
  • Ripple vs SEC case ruling is important to future crypto regulation.

After Ripple filed its redacted reply to the SEC’s opposition in court to the motion for summary judgment, the closure of the case appears to be on the horizon. 

Ripple Labs Inc. has previously filed a motion for summary judgment in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC).  Ripple founder, Brad Gardlinghouse, congratulated the entire Ripple Team for reaching the current point. 

The court allowed the entities to file an amicus brief in favor of either Ripple or the SEC, and the last day was November 30, 2022. Both parties were expected to file responses to the motion, which Ripple primarily pursued.  Amicus is an individual or organization that is not a party to an action but who volunteers or is court-invited to advise on a matter before the court.

Ripple vs SEC review

The United States Securities and Exchange Commission (SEC) filed a lawsuit against Ripple on December 22, 2020, stating that the San Francisco fintech company raised more than $1.3 billion through dishonest tactics. The SEC asserted that Ripple sold its currency, XRP, for unauthorized securities.

Ripple also argued that the SEC failed to prove that XRP executives had the necessary intent to create an investment contract. Ripple’s motion for summary judgment is yet another step in its ongoing legal battle with the SEC. If the motion is granted, it would effectively end the case and XRP would no longer be subject to SEC enforcement actions. The SEC has yet to respond to XRP’s motion.

Garlinghouse the CEO of Ripple labs, asserts that the company is growing despite the current decrease in the business. According to him, the volume of its On-Demand Liquidity cross-border payment service, which runs on XRP, increased to $8 billion in the first quarter of 2022 from $1 billion in the same period last year.

SEC failed to satisfy three Howey elements

The defense pointed out that the SEC has been unable to satisfy each of the three Howey elements. On the first element, financial investment, the SEC admits that the Defendants’ distribution of billions of XRP units involved no financial investment at all.

Even in transactions involving a monetary exchange, the SEC has failed to demonstrate that purchasers invested that money in a common enterprise, as Howey requires, rather than simply purchasing an asset.”

Ripple lawyers clarified that in the absence of an investment of money (or its equivalent) in a common enterprise, there can be no investment contract and thus no violation of the securities laws.

The SEC cannot overcome two fundamental flaws in the final element, the expectation of profits based solely on the efforts of others.” First, no reasonable expectation can exist in the absence of actual obligations assumed by the promoter, and the SEC has identified none. Second, even if such obligations existed, no reasonable expectation of profits could exist in the absence of proof of the promoter’s ability to carry out its obligations and satisfy the investors’ expectations.

Ripple Legal Team

In this statement, the SEC is arguing that it is not possible for investors to have a reasonable expectation of profits based solely on the efforts of the promoter, because there must be actual obligations undertaken by the promoter and proof of the promoter’s ability to execute on those obligations in order to create such an expectation. Without these two elements, it is impossible for investors to have a reasonable expectation of profits.

SEC alleges that XRP as an investment

The SEC’s complaint further alleges that Ripple has made a number of representations to market XRP as an investment, including touting its potential for appreciation and making misleading statements about the liquidity of XRP. 

The SEC also alleges that Ripple has offered financial incentives to market makers to trade XRP and has paid for services to market XRP. Ultimately, it will be up to a court to decide whether Ripple has violated the Howey test and whether XRP is a security.

What’s the importance of the Ripple vs SEC court ruling?

If the SEC were to prevail, other digital asset issuers may be forced to comply with the same administrative and regulatory requirements as traditional securities. In addition, it could create an environment of fear and uncertainty in the cryptocurrency industry, with investors potentially being hesitant to take risks in the digital asset space.

It could also have an effect on the future of Initial Coin Offerings (ICOs), which have been widely used to raise capital for startups but have come under increasing regulatory scrutiny. Ultimately, the outcome of the SEC’s legal action against Ripple could have a major impact on the future of cryptocurrencies in the US, and could even shape the regulatory landscape for digital assets around the world.

However, If Ripple manages to win the case, it would be a huge victory for the Company. It could open the door for other cryptocurrency companies that are facing similar legal challenges.

Should you buy XRP now?

Ripple is currently trading at $0.390249 at the time of writing. It has traded as low as $0.3875 and as high as $0.3928 in the last 24 hours. The market capitalization of XRP is $39,070,010,913, and the token has a total trading volume of $445,302,743. 50.26 billion XRP are currently in circulation. The bears have taken advantage of the Ripple vs SEC news, but the bulls are also working hard to keep the market.

Ripple investors are still hoping for the best from the court in order to put a stop to their case with the SEC. Investors are urged to exercise caution and make informed financial decisions.

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