This morning, the SEC announced that it had settled charges against three companies following an investigation into the trading activity of companies that hold cryptocurrency assets. The SEC’s goal was to make sure that trading platforms are in compliance with securities laws, and that investors are receiving the disclosures they should be receiving. However, to the SEC’s credit, the settlements that were reached were very accommodating given the unique set of circumstances that each company encountered. One was a company that didn’t have a trading platform at all, and the other two were those that did have a trading platform but were unable to access the Bitcoin (BTC) markets due to a lack of a banking relationship.
Ripple Labs, the creator and leading developer of XRP, the world’s most popular and scalable digital asset, has hired former SEC Chief Accountant Edward T. Enninful to serve as a Senior Executive Advisor. Ripple’s Chief Compliance Officer, Susan Athey, will also serve as a Senior Advisor to Ripple.
The Securities and Exchange Commission (SEC) recently announced that it is planning to assess the current crypto industry against what it considers to be “fraudulent schemes.” According to the SEC, the determination is based on “whether a particular instrument has been offered and sold pursuant to a federal or state securities law.” This means that the SEC will look at blockchain-based projects, such as Ripple, to determine whether they fall within this definition.
In a recent interview with news portal Protocol, Stuart Alderoti, senior counsel at Ripple, who leads Ripple’s legal team in its fight against the SEC’s lawsuit, said that the lack of a regulatory framework for cryptocurrencies has led the cryptocurrency world into a regulatory dead end, with perverse results.
While the interview touches on many hot topics related to cryptocurrencies, we will focus on the SEC’s Ripple lawsuit and the potential regulatory framework for the regulation of cryptocurrencies in the US.
Why is the SEC on the wrong side of the fight?
Before Ripple officially launched, the XRP ledger was already in place and 100 billion XRP tokens had already been minted immediately, and after Ripple launched, a portion of those 100 billion pre-created tokens were given to the company, all of which had nothing to do with the [Howey test] security analysis, Stewart said in the transcript. The real question, he says, is whether the asset [XRP] is being sold as part of an investment contract?
The easiest way to think about the lawsuit and why the SEC is wrong is that Ripple never sold XRP under an investment contract.
From a legal standpoint, it doesn’t matter if the tokens Ripple received were minted in advance or created later, proof of stake or proof of work, but the key question is whether or not Ripple sold XRP and the investment contract.
Potential regulatory framework for cryptocurrencies
Stuart Alderoti also noted that given the regulatory uncertainty created in the US by the SEC, they are essentially ceding this [cryptocurrency] innovation to foreign countries.
Finally, he suggested three key areas of regulation on which the regulatory framework for cryptocurrencies could be built.
First, regulators must provide some protection for cryptocurrency traders. The second is to try to keep the bad guys out of the crypto world. The third point is about limiting the environmental impact of cryptocurrencies. And the controller alone is not enough to implement these three points. Instead, a group formally composed of all relevant parties should be established to develop a framework that regulates, but does not stop, crypto-currency innovation.Here’s a video with Ripple counsel, one of the leading figures in the digital currency space. Ultimately, the SEC has to decide whether it wants to regulate or not. But before that happens, the SEC is going to have to figure out how to regulate. It’s going to have to decide how to assess the risks of XRP, how to regulate exchanges, and how to make sure that ICOs can raise money in an organized way. The question of whether a new digital currency should be classified as a security or not is one that is likely to be decided by the SEC’s public policy makers in the coming months.. Read more about latest on sec vs ripple and let us know what you think.
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