As a protracted debate between the United States’ financial watchdog and the California-based studio raising eyebrows in the cryptocurrency world continues, a new angle has been taken by a pro-XRP attorney, one who believes that the dramatic amount of $770 million supposedly at stake, may not be realized. In this article, we will explore the legal perspectives of the experts and the potential implications of their arguments within the ongoing SEC case against Ripple.
1. Ripple’s Legal Battle With the SEC
Ripple, the US-based blockchain startup, faces a legal battle with the US Securities and Exchange Commission (SEC). In December 2020, the SEC charged Ripple with conducting an “unregistered, ongoing digital asset securities offering” to the tune of over 1 billion US dollars.
The SEC maintains that Ripple sold their native asset XRP as an unregistered security to the general public, violating securities laws. Ripple, however, contends that XRP is a medium of exchange similar to Bitcoin and Ethereum, and not a security.
The legal proceedings have dramatically affected the value of XRP. XRP dropped from around $0.45 to $0.18 when the lawsuit was announced. Ripple already settled similar allegations with the Financial Crimes Enforcement Network in 2015, paying a $700K penalty and instituting new AML/KYC policies.
- The SEC alleged Ripple conducted an “unregistered digital asset offering” to the public.
- Ripple argued XRP was a medium of exchange, not a security.
- The lawsuit affected the value of XRP, which dropped from $.45 to $0.18 after the announcement.
2. Attorney’s Arguments in Support of XRP
Attorneys for Ripple Labs have argued that XRP is
3. Potential Implications of the SEC’s Case Against Ripple
The SEC’s case against Ripple may have some potential implications for various market players. Here are the three most significant implications:
- Implications for Other Cryptocurrencies: The market may become more wary of a handful of other cryptos, such as Bitcoin and Ethereum. The markets will likely assess whether these cryptocurrencies are also a security or not. Following the SEC’s civil lawsuit, it is prerequisite to do an in-depth review of the regulatory situation with other cryptos that drives investments in the market.
- Exchanges Impact: Crypto-to-fiat exchanges would witness a negative impact. Crypto exchanges that are registered with the SEC are very likely to suspend the trading of XRP and closely follow the suit of US-based exchanges. Nevertheless, the exchanges that don’t fall in this category and remain under no legal obligation may continue trading.
- Effects on Ripple and XRP: As the SEC has indicted Ripple, the firm and its executives may face hefty fines or will have to pay millions of dollars to settle the charges. It also raises questions about how XRP will perform in the near future, particularly as the current price of the cryptocurrency has plummeted by 25-30%. Investors that are having the majority of their holdings in XRP are likely to suffer a major loss in their portfolio.
The long-term effects of the SEC’s case against Ripple are yet to be seen but recent developments suggest that the long-term effects could be considerable and far-reaching.
4. Factors Suggesting A Large Disgorgement Is Unlikely
In certain cases, a large disgorgement may be unlikely depending on the circumstances of the case. The following are a few factors that could affect such a calculation:
- Degree of Wrongful Profit: The amount of wrongful profit a party has gained may be taken into account when deciding disgorgement, and thus could lead to smaller disgorgement amounts.
- Duration of Unlawful Activity: The length of time during which the wrongful activity was sustained can be an indication of whether the court will order a large disgorgement, since it can suggest whether a party was in a position to gain considerable profits due to its wrongful conduct.
- Dilution of Profits: Profits which have been diluted due to other sources of revenue can be used to reduce the amount of disgorgement, as it can show that the wrongful activity was not solely responsible for the profits gained.
The magnitude of the wrongfulness committed could also be a factor in suggesting a large, or more modest, disgorgement amount. A single wrongdoer’s misconduct generally does not require as much disgorgement as a conspiracy between multiple parties, as the latter would indicate a more systemic wrongful activity with greater potential wrongful profits generated.
On the other hand, if a party has taken significant actions to mitigate its wrongful gains, such actions can be taken into account when determining the size of a disgorgement. For example, if a party has engaged in remedial efforts to clean up the wrongful activities, then disgorgement may be adjusted accordingly.
The highly-anticipated Ripple v. SEC trial is expected to begin in a few months. Until then, legal experts will be closely observing the case as this hotly debated crypto asset goes up against the regulator. While there are some apprehensive about the outcome, attorney Jeremy Hogan believes the $770 million disgorgement is an unlikely reality. In any case, one thing is for sure, this case will certainly shake-up the crypto space.