- A 49-page document from Perkins Coie, an international law firm that provides legal advice on the classifications of cryptocurrencies disagrees with SECs.
- Williams Hinman, former Director of SEC’s Division of Corporation Finance previously stated that XRP is not a security.
It can be recalled that the US Securities and Exchange Commission (SEC) sued Ripple Labs in 2020 for issuing unregistered Securities. About a month ago, a couple of key memos made available to the public disclosed that the legal advice received by Ripple in 2012 was that regulators would not consider XRP as a security.
Ripple General Counsel Stuart Alderoty stated that:
We are pleased with the Court’s order to release these documents to the public. The documents show a ‘compelling’ legal analysis that Ripple received in 2012 that XRP is not a security.
According to recent reports, Williams Hinman, former Director of SEC’s Division of Corporation Finance received a 49-page document from Perkins Coie, an international law firm to provide legal advice on the classifications of cryptocurrencies. It is believed that this document served as important legal advice to the Agency three months before Hinman’s famous speech that listed Ethereum and Bitcoin as non security.
A portion of the document reads:
A token by itself is never an investment contract […] The investment contract arises from the understanding as to how the token will be developed into something of useful value.
According to reports, Hinman also clarified that XRP is not a security. In a letter written by former SEC chairman Jay Clayton to congressman Ted Budd in 2019, he backed the statement that certain cryptos like XRP are not security.
Ripple claims “big win” over the dismissal of SEC’s motion
XRP has been actively functioning in cross-border settlements forcing some countries like the United Arab Emirates, Switzerland, and the United kingdom to declare cryptos as non security. This is a bit different in the United States of America as it has no clear regulatory framework that puts cryptocurrencies under various classifications. However, the SEC believes that the characteristics of XRP are directly in line with what they call security. SEC also maintains that the statement of Hinman and the letter of Clayton to the congressman are irrelevant as they merely represent their personal opinions rather than the position of the Agency.
The Order answers any question as to whether the SEC’s internal documents are relevant to the Individual Defendants’ scienter. They are not [irrelevant].
It is important to note that there have been two critical rulings on the Ripple Labs vs SEC case. Southern New York District Court Judge Analisa Torres recently denied the SEC’s motion to dismiss Ripple’s fair notice defense. The judge has equally denied Ripple’s motion to dismiss the case against them.
Ripple is fighting from two different angles – fair notice defense, and XRP is not a security. Ripple argued that SEC did not give them fair notice that it will consider the distribution of XRP under security laws. This did not help them to follow due process. In response, the SEC filed a motion to dismiss this defense. Ripple CEO Brad Garlinghouse believes that the decision to dismiss the motion is a big win for them.