Ripple Labs needs to close this legal chapter with the SEC as soon as possible.
Digital assets are the hottest topic within the finance industry and the Ripple lawsuit is regarded by many as an opportunity for more regulatory clarity in the space.
The Judge has recently pushed discovery back 60 days as requested by the Securities and Exchange Commission, with anxiety kicking in especially for the XRP community who count the days until it’s all over. The updated agenda, here.
Ninety-six percent of all SEC cases are settled before trial, of which 60% before litigation and 90% in discovery. This fact only serves as a guide for what is coming. Anything can happen.
The community siding with Ripple is eager for an end to the lawsuit and one of its most popular members, attorney Jeremy Hogan, has been sharing his predictions.
In May, Mr. Hogan said that if the SEC’s new Chair Gary Gensler pulled back from the lawsuit and instead work for more regulatory clarity, that would happen until the end of that month. That didn’t happen.
“If we go into June with no settlement then this lawsuit has been adopted and supported by Chairman Gensler for better or worse. If that is the case I predict no settlement until September at the earliest. If there is no settlement and we go to summary judgment or trial I predict…well, heck I don’t know – do I look like a mind reader?”, he added.
In early June, Mr. Hogan shared his view on what a settlement between the SEC and Ripple Labs would look like, including the potential damages for the XRP market.
Now that the Judge pushed discovery back 60 days, the lawsuit timeframes have changed and Jeremy Hogan has updated his predictions. “So, I go back to my initial idea that no settlement will happen until the close of discovery. Could it settle before then? Yes, I just don’t think it’s likely.”
“So, any settlement is likely to be after at least the close of fact discovery and that is now early September and even more likely to be after October 16.”
What if both parties don’t reach a deal? “Then I believe the two main issues will be decided by Judge Torres at the summary judgment”.
Motions must be filed within 30 days of the close of discovery and that should be November 16, but responses to motions and sur-replies could push any summary judgment to an unknown date in the future.
“I don’t see the case being decided at summary judgment until early 2022 – maybe January”, he concluded.
The two main issues mentioned above are Ripple’s fair notice defense and whether XRP is a security or not.
Regarding the Fair Notice Defense, the SEC has recently warned the Court that a Ripple win would nullify the Howie Test – the benchmark that has come under scrutiny with the emergence of the digital asset class. Ripple has partnered with Rutgers Law School to push for reform.
A Ripple win on the Fair Notice could not only have a significant impact on Ripple and XRP but also on the crypto ecosystem as a whole and even partially defund the SEC.
On the nature of XRP, the SEC has been claiming the asset is a security due to its centralized nature. Ripple, on the other hand, has kept proposing new use cases for the ledger – which is a sign of utility.
In March, the Judge dropped a bombshell in the form of admitting to XRP’s utility, which contradicts the SEC’s security argument.
SEC Commissioner Hester Peirce, also known as “crypto mom”, has recently explained what is the SEC’s intention when filing a complaint against a firm for an unregistered securities offering.
“When we think about a cryptoasset as being a security what we’re doing is we’re saying it’s being sold as part of an investment contract. It doesn’t mean that the asset itself necessarily has to be a security. It means that it was being sold as a security.”
In the meantime, a new competitor led by ex-Paypal and Ripple staff has emerged: Algorand-powered Six Clovers.
This just goes to show how important is for Ripple to close this legal chapter with the SEC. The regulator, however, is able to use this sense of emergency as leverage.
Speaking of leverage, we reviewed the last crypto crash and the role of leverage or margin trading in market volatility, with an eye on Ripple’s XRP.