Former SEC Chair Mary Jo White told Fortune magazine that the commission she once led is “dead wrong” in this case.
In the interview with Fortune, White pointed to problems with the case against Ripple on several levels. First, she pointed to the oddity of the timing and the lengthy investigation that preceded it. White framed her explanation in terms of her experience both as an SEC Chair and a U.S. attorney at the Southern District of New York. “…when it takes that long to figure out a case, you probably shouldn’t be bringing it.”
While the way the case was brought about raises questions, it fails on merit, says White. She points to the fact that the SEC has not developed a consistent framework to handle crypto. The Commission ruled that Ethereum is not a security, for example.
Light at the End of the Tunnel
In the interview, White posited two possible time frames. A court decision at Southern District of New York could come as early as October. Alternatively, Ripple and the SEC could reach an out-of-court agreement beforehand.
An out-of-court agreement is likely, given comments from SEC Commissioner Hester Pierce. In an interview in January, Pierce noted that the Commission usually settles such cases out of court. Pierce is also one of many influential voices within the American government calling for greater clarity regarding cryptocurrency on the part of the multiple agencies connected to the industry in some way.
The Case Against Ripple
On Dec. 22, 2020, the SEC filed two suits in Southern District of New York federal court against Ripple and two of its CEOs. In one, the SEC claims that Ripple sold $1.2 billion in unregistered securities. In the other, the Commission claims that current Ripple CEO Brad Garlinghouse and former CEO Chris Larsen sold a further $600 million in unregistered securities.
The market reaction was swift, with Ripple’s XRP token plummeting in value until recently. Because the SEC has a long reach within the U.S., crypto exchanges began delisting and freezing XRP trading. Foreign exchanges, however, largely ignored the ruling, except for forbidding U.S. clients from trading in the token.
Garlinghouse maintains that only 5% of Ripple’s clients are within the United States, and that freezing Ripple’s activities in the US completely would not damage the network as a whole.