A former high-ranking official of the U.S. Securities and Exchange Commission (SEC) thinks the recent ruling in the regulator’s high-profile lawsuit against Ripple is primed for reversal on appeal.
John Reed Stark, who founded the SEC’s Office of Internet Enforcement and spent 11 years as its chief, says in a new LinkedIn post that US District Judge Analisa Torres’ ruling “resides on shaky ground.”
The SEC launched the lawsuit against Ripple in 2020, alleging the San Francisco payments company sold XRP as an unregistered security.
Judge Torres sent shockwaves through the crypto ecosystem on Thursday when she ruled that Ripple’s automated, open-market sales of XRP – referred to as programmatic sales – did not constitute security offerings.
However, she did side with the SEC in the regulator’s assertion that the company’s direct sales of XRP to institutional participants did represent securities offerings. The court plans to issue a separate order setting a trial date for Ripple and the SEC “in due course.”
Stark says the decision counterintuitively establishes “a class of quasi-securities” that changes designation based on the buyer’s level of sophistication.
“The bottom line: (a) stock is always stock – it can’t transmogrify into ‘not stock.’ So my take is that at some point, the SEC will appeal the Ripple decision to the 2nd Circuit and the 2nd Circuit will overturn the District Court’s rulings related to ‘programmatic’ and ‘other sales…’
The Ripple decision holds that the same exact token can be a security sometimes but not a security other times. And the more ignorance and willful blindness by retail investors, then the less protection the retail investors will receive. And the less disclosure about the token, then the less liability for the token issuer. That just can’t be right.”
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