- Ripple’s lawyers have provided “concrete examples” of how the SEC accepted XRP’s non-securities status in meetings with exchanges and hedge funds, without being “told otherwise by the SEC”.
- According to Senior Trial Counsel at the SEC, the agency has never taken an official position that Bitcoin and Ethereum are not securities.
The U.S. Securities and Exchange Commission continues to become entangled in contradictions and increasingly loses credibility as a result of the obviously illogical premises that have been drawn. A few hours ago, the transcript of the latest hearing in the Ripple Labs litigation was published.
As CNF reported, Ripple won its request for access to external and partially internal SEC documents regarding the classification of Bitcoin and Ethereum as non-securities. With the decision, Magistrate Judge Sarah Netburn sent two signals in favor of Ripple: for a possible early settlement of the case and for Ripple’s fair notice defense.
In addition, Ripple’s attorneys once again managed to highlight the SEC’s inconsistency in its stance. Michael Kellogg, one of Ripple’s attorneys laid out that they have already found documents from third parties, such as cryptocurrency exchanges and hedge funds, that have “met with the SEC specifically seeking guidance” on whether they may list and transfer XRP along with Bitcoin and Ether, or “whether XRP must be treated as a security.” Kellogg elaborated:
They [the exchanges and hedge funds]presented their own analysis to the SEC about why XRP was not a security. And after the meeting they proceeded to list XRP on their exchanges or invest in XRP in their funds. So, obviously they reached the conclusion that XRP was not a security and was not told otherwise by the SEC.
As Kellogg further elicited, the “materials on those meetings between the SEC and third-parties were shaping market expectations about XRP” and are therefore highly relevant to the argument that XRP is like Bitcoin and Ether, “and not like the initial coin offerings at issue in Telegram”. Brad Garlinghouse’s attorney, Matthew Solomon, repeated the evidence in favor of Ripple, saying:
We have concrete examples of interactions between sophisticated market players as late as May ’19 where the SEC has engaged in dialogue with those market players and the actions they took after that dialogue establishes that they believed, walking away from the meetings with the SEC, that XRP was not a security.
That’s exculpatory. And we know the SEC has provided private guidance to other market participants leading them to understand that XRP was not a security and that guidance is directly relevant to how the market viewed XRP.
Not just XRP: Is the status of Bitcoin and Ethereum also not determined?
But it’s not just the SEC’s comments on XRP, but also on Ethereum and Bitcoin that are puzzling, to say the least. While the status of Bitcoin and Ether (ETH) was actually considered clarified after former Chairman Jay Clayton publicly declared Bitcoin as a non-security on several occasions and William Hinman, a senior official at the SEC, gave a well-received speech in 2018 in which he outlined that Ether is not a security.
This view, by the way, was also followed by Judge Netburn, who said during the hearing:
My understanding is that in 2018 the SEC announced its decision that those two assets were not securities.
However, Dugan Bliss, senior trial counsel at the SEC, disagreed, stating that the agency has not taken an official position on the regulatory status of Bitcoin and Ethereum:
So I want to make clear that this is my understanding of the current situation and I don’t want to be overly technical but the SEC, itself, my understanding, it has not taken an official position. There is no action that it took to say Bitcoin is not a security, Ether is not a security.
Bliss further contends that Hinman’s speech does not necessarily reflect the regulator’s views on Ethereum:
Now, there was a speech by a high-ranking person who said that to him that’s what it looked like but there has been no action letter, no enforcement action, none of the official ways in which the SEC takes a position on that matter that has occurred. What I understand defendants to be referencing is the speech by Mr. Hinman which is not an official statement of the Securities and Exchange Commission itself.
Despite all the ambiguity and inconsistency, there is one hope: Gary Gensler. The new SEC Chairman’s inauguration is imminent, with him at least referring to Bitcoin as a commodity in his recent Congressional hearing.