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Ripple Lawsuit Building Up to Be a Watershed Moment for SEC Enforcement Policy

2 mins
Updated by Ali Martinez
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In Brief

  • SEC criticism is mounting from all sides.
  • A win for Ripple could diminish its enforcement powers.
  • A loss would likely result in a crypto exodus from the U.S.
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All eyes are on regulators in the United States at the moment as their war on crypto ramps up. The outcome of the Ripple case with the Securities and Exchange Commission could have a major impact on the future of the agency’s enforcement regime.

The SEC has been on the warpath this year, with crypto companies being its primary target. Furthermore, the regulator has exceeded its jurisdiction by classifying staking and stablecoins as securities.

The ongoing court case with Ripple, which it also accused of selling unregistered securities, could have a major impact on the U.S. regulatory landscape.

According to a Feb. 15 San Francisco Examiner article, the legal showdown has become a “nerve-wracking waiting game for much of the crypto industry.”

Ripple vs. SEC: A Watershed Moment For Crypto

The SEC sued Ripple in December 2020. It accused the fintech firm of failing to register around $1.4 billion worth of its XRP cryptocurrency as securities. Ripple maintains that the cross-border payment coin is not a security, arguing that it does not satisfy the requirements of the Howey test.

If the company wins the case, which CEO Brad Garlinghouse expects to conclude by summer, it could change the way the SEC regulates by enforcement. Analyst Rebecca Wettemann told the outlet:

“The Ripple outcome will set the direction and tone for how the U.S. regulates crypto moving forward,”

Fintech analyst with Moor Insights & Strategy, Melody Brue, echoed a common complaint that there is no clarity or guidance from the SEC:

“Gensler is making up rules as he goes in regards to crypto. [That’s why] one of the more significant things that will come out of (the Ripple) decision will be precedent,”

Furthermore, Ripple’s chief legal officer, Stuart Alderoty, called the SEC chair “a political liability” earlier this week. Many crypto industry executives and experts have echoed similar sentiments.

However, a loss for Ripple could send shockwaves across the U.S. crypto industry. A victorious SEC would probably attack every other digital asset the same way. This would drive investment and innovation overseas and put investors at risk, which is exactly what regulators are trying to prevent.

Last year, Brad Garlinghouse said that he would leave the U.S. if Ripple loses the case.

Securities & Exchange Commission War on Crypto Continues

Gary Gensler’s agency has not relented in pursuing crypto companies.  On Feb. 15, CNBC reported that the SEC had proposed rules that would change which crypto firms can be custodians of customer assets.

The proposed changes to federal law would mandate custodians, including crypto exchanges, “secure or maintain certain federal or state registrations.”

Additionally, this makes it even more difficult to secure regulatory approval for crypto products, further quashing the industry.

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Martin Young
Martin Young is a seasoned cryptocurrency journalist and editor with over 7 years of experience covering the latest news and trends in the digital asset space. He is passionate about making complex blockchain, fintech, and macroeconomics concepts understandable for mainstream audiences.   Martin has been featured in top finance, technology, and crypto publications including BeInCrypto, CoinTelegraph, NewsBTC, FX Empire, and Asia Times. His articles provide an in-depth analysis of...
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