It’s time for the SEC to settle with Coinbase and Ripple
In every major litigation, there comes a moment when you realize it’s time to settle. A ruling doesn’t go your way, a juror gives your legal team the side eye, the judge makes it clear it’s time for a settlement conference. After Judge Analisa Torres’ decision in SEC v. Ripple, the time has come for the United States Securities and Exchange Commission to settle the remainder of its case against Ripple Labs — as well as its case against Coinbase.
The SEC’s attack on crypto has used a flexible legal definition of what constitutes a security that must register with the SEC under a legal test established by the Supreme Court in the 1946 case SEC v. Howey. Through most of its history, the SEC used this tool to go after outright frauds and scams with little economic reality behind them. You can understand why judges tended to give the SEC the benefit of the doubt and made the test increasingly flexible over a series of historical scam cases. Using this flexible test to attach legitimate crypto projects is different and, ultimately, leaves crypto projects with no way to register.
Torres ruled that sales to retail investors of the XRP (XRP) token were not necessarily linked to the entrepreneurial efforts of Ripple as a firm and, thus, failed one element of the Howey test. This is a unique crypto twist on the Howey test. Linking the investment to the entrepreneurial efforts of whoever is selling the interest is going to be harder in crypto because tokens don’t represent an equity interest in the issuer. Thus, the purchaser of a crypto token is not as closely linked to the efforts of the founder of a new blockchain as equity investors in traditional firms.
Related: The Supreme Court could stop the SEC’s war on crypto
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