Ripple: SEC Tries Flimsy Way To Expand Its Turf, Says Legal Expert

Posted on December 29, 2022
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By Mark Otto
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In a new article for Forbes, legal expert Roslyn Layton is criticizing the U.S. Securities and Exchange Commission (SEC) for its questionable enforcement policy against the crypto industry and Ripple in particular. Meanwhile, frustration with the SEC and lawmakers is growing in the U.S. crypto industry. Despite the fact that various industry leaders have called […][...]

Despite the fact that various industry leaders have called for clear laws and guidance for regulated progress, the agency led by Gary Gensler refuses to act. Instead, Gensler has repeatedly emphasized recently that the present regulatory framework is sufficient, and that the SEC will continue to rely on its regulatory approach through enforcement.

As Layton denounces, this is a policy driven by political interests. “Regulators sometimes use headline grabbing to send political messages to demonstrate their value to stakeholders,” Layton wrote.

As Sandra Hanna, head of Miller & Chevalier’s Securities Enforcement Practice, says, key crypto industry players have asked for guidance and tangible regulation, but this has not been forthcoming. She explains:

The well-established crypto participants are, in good faith, trying to engage with the staff. For reasons none of us understand, that process is too slow and cumbersome and has yet to bear fruit.

Ripple And LBRY Are On The Front Lines In The Battle Against The SEC

Regarding Ripple’s legal case with the SEC, Layton notes that the regulator is living in its own “microcosm” with its sweeping argument that all crypto assets are securities. The SEC argues that all sales of XRP are investment contracts from the start, even if they took place on the secondary market.

“The SEC’s arguments were so weak that Ripple’s attorneys rapidly turned the tables on the regulator in court and put the SEC itself on trial,” Layton continues, warning that all crypto companies – legal or fraudulent – are being undermined.

According to Layton, the Ripple case will “likely” expose the SEC’s strategy of regulation through enforcement as “a flimsy attempt to expand its turf” while pretending to be concerned about investor protection.

But not only Ripple but also LBRY’s case against the SEC is increasingly coming into the spotlight of the crypto industry. As Bitcoinist reported, the SEC is demanding remedies from LBRY. Moreover, with the case, the SEC apparently wants to expand its jurisdiction to the secondary market of cryptocurrencies, which would be devastating for the entire crypto industry.

Therefore, as attorney John E. Deaton writes, who also represents 75,000 XRP investors in the Ripple case, the January 30 hearing on LBRY’s request to limit the SEC’s remedies could become “arguably the most important hearing to date” for the crypto space.

Also, the SEC’s request for disgorgement from a non-party is far worse than a mere cease-and-desist order against LBRY. The action could theoretically allow the SEC to intervene in the secondary market and prevent transactions by people who are only users of a platform.

According to Deaton, the SEC is inappropriately seeking punitive disgorgement in a non-fraud case. As in the Ripple case, SEC lawyers are also lacking “faithful allegiance to the law” and ignore applicable law, seeking compensation against an uninvolved entity that could set a very bad precedent.

“[T]he language of the proposed permanent injunction, coupled with the SEC’s absolute refusal to distinguish secondary market sales or even transactions by users, demonstrates the SEC’s intent to expand its jurisdictional reach into the secondary market,” Deaton concluded.

The entire crypto industry should therefore hope for Ripple and LBRY to prevail in their battles against the SEC.

At press time, the XRP price stood at $0.3474.