As the widely publicized case in which the United States Securities and Exchange Commission (SEC) is accusingĀ RippleĀ of illegally selling theĀ XRPĀ token is awaiting its conclusion, one particular law professor has said that theĀ regulatorĀ is treating theĀ blockchainĀ company as aĀ Ponzi schemer.
Indeed, in the SEC v. Ripple case, the securities watchdog has asserted that āone test for a security required to register with the SEC, contained in the 1946 Supreme Court caseĀ āSEC v Howey,āĀ applies to the XRP token that is used by Ripple,ā according to anĀ articleĀ written by law professor J.W. Verret from October 2022.
As the associate professor teaching corporate and securities law andĀ financialĀ accounting at George Mason Law School and practicing lawyer explained:
āThe test used in SEC v. Howey is typically used by the SEC to sue hucksters, Ponzi schemers, and other con men who sell fake securities. The Howey test is a way to stop them, not a means to facilitate registration with the SEC.ā
Problem with listing XRP
In Verretās view, āasking Ripple to list the XRP token and file financial information about the XRP network, much like asking the same for a party working on another crypto network likeĀ Ethereum, doesnāt make sense from a securities law or accounting perspective.ā
To drive his point home, Verret went on to argue that such a thing āwould be the functional equivalent of telling Google they must list āthe internetā as an asset on its balance sheet because Googleās value is closely connected to the internet.ā
Furthermore, his argument, which was alsoĀ sharedĀ by the pro-XRP defense attorney and the founder of the crypto-related legal and regulatory news portalĀ Crypto LawĀ John E. Deaton on February 3, states that:
āSecurities laws and generally accepted accounting principles wouldnāt allow Google to make such a misleading balance sheet counting the internet as a Google-owned asset, and they similarly wonāt allow an entity to register XRP orĀ ETHĀ either.ā
Instead of fighting crypto companies, Verret asserts, the SEC should instead focus on ending its regulation by enforcement and engaging withĀ cryptoĀ reform proposals to update its approach to the regulation of theĀ cryptocurrency industry, similar to how it updated its rules to evolve with the rise of internet communications.
Awaiting judgment
After both sides filed theirĀ summary briefings, DeatonĀ referredĀ to the SECās argument as āschizophrenicā regarding what constitutes the common enterprise in the Ripple case and argued that there is a possibility that the presiding judge could deny summary judgment.
Meanwhile, the outcome of the legal battle between the SEC and Ripple is projected to impact the broader crypto market, along with the XRP token price performance, asĀ illustratedĀ recently by the lawyer and crypto sector commentator Bill Morgan.
