“There has never been a crypto case in which this has happened. So, this would be unchartered waters but the effect of any order would be absolutely devastating.”
The SEC v. Ripple lawsuit is getting tense.
After several winning rounds for Ripple, the SEC is back putting pressure in the form of the motion to compel Ripple to hand over recordings that will support the agency’s case that XRP was marketed as a security.
While the dispute over the recordings continues and the Judge’s decision is still pending, attorney Jeremy Hogan went on Youtube to explore how Ripple can lose the lawsuit and what it means for XRP.
First off, Mr. Hogan pointed to two scenarios that can lead the SEC to victory.
The marketing scenario is like Telegram, which was at the time developing the blockchain project, GRAM. The SEC wants to lead the court to the conclusion that a reasonable purchaser of XRP would expect a profit from Ripple’s continued support of XRP.
The SEC has already found evidence that proves its case. One example provided by attorney Hogan is Ripple’s CTO David Schwartz comment in 2013: “As a corporation, we are legally obligated to maximize shareholder value. With our current business model, that means acting to increase the value and liquidity of XRP.”
“That is one path to victory for the SEC, but it is not the worst-case scenario because the marketing path does not focus on anything inherent to XRP itself, just how it was sold by Ripple.
“This first scenario would be limited to disgorgement damages and perhaps injunctive relief, but could it amount to a finding that XRP is inherently a security?“, the attorney asked.
A similar scenario would be Kin Interactive, which was sued by the SEC for the sale of unregistered securities. The court ordered a fine but didn’t contain a finding that the Kin token was a security.
The firm’s statement in October 2020, said that Kik is going to be OK. “Beyond the monetary fine, Kik’s assets are still Kik’s property, including its remaining treasury, its Kin reserves, and all of its intellectual capital. With this settlement, Kik is able to continue active development on the open-source Kin SDK and their new wallet app, Code”.
Jeremy Hogan raised two questions for the scenario in which Ripple loses the lawsuit.
– Can Ripple continue its business after paying the disgorgement judgment and without potentially being able to sell XRP, except to perhaps accredited investors?
– Will the exchanges feel confident enough to relist XRP?
The second scenario – which disputes the inherent nature of XRP – raises even harder questions. Attorney Jeremy Hogan called it the tidal wave scenario and it hinges on what is currently going on in the litigation with expert discovery.
“The bigger concern is based on the decentralization, or lack thereof, of the XRP ledger. The SEC hasn’t really focused on this argument, probably because it is a losing argument and it doesn’t really mesh with its theory of the case.
“But it is much more dangerous to you”, he continued, stating that the argument here is that XRP is centralized and so reliant on Ripple that makes it a security.
“There has never been a crypto case in which this has happened. So, this would be unchartered waters but the effect of any order would be absolutely devastating. Would have an instantaneous chilling effect on the markets, freezing liquidity, and leaving XRP holders holding the bag”.
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