SEC vs Crypto World in a Nutshell
All you wanted to know about notorious crypto lawsuits
While crypto community is stressing, the others are puzzling, and both about the litigations initiated by the U.S. Securitites and Exchange Commision (shortly: SEC) towards crypto entities. The fact that it is nearly as impossible to shape the consistent picture of SEC cases is truly sound, as the informational field shifts the focus too rapidly, regardless of the state body which wallowed in a great deal of lawsuits. Binance, Coinbase, Bittrex.US, Ripple — they all turned out to be the victims of enforcement actions, but the latter recently won the case which still does not radically change the state of things.
Why is SEC suing crypto companies? Which legal framework does it operate with? And what impact does it have on crypto community? Everything which remained obscure and muddled throughout bustling informational field — in this consistent article.
Ripple Labs: First Victory against SEC
On July 13, 2023, U.S. Southern District of New York District Court Judge Analisa Torres stated that XRP, Rippe Labs’ digital asset, is “not necessarily a security on its face”, hence its operation is not utterly subordinated to SEC’s mandate. Evidently, crypto community has seen a silver lining in this claim, and what is more, someone even dared to dub it “a victory”. The pioneering win on the side of crypto not surprisingly created the buzz around itself, thus it is crucial to know how the litigation between Ripple Labs and SEC broke out.
Chronology:
Ripple Labs entered the technological dimension in 2012 with the promising offer: integration of fast and cost-competitive cross-border payment systems into the financial institutions via RippleNet — their own network, whose part and parcel was newly-created XRP cryptocurrency. Apart from its integrity in system’s functional flow, XRP was also used for fundraising via IPO (initial public offering), and that consequently led to Ripple’s expansion.
This game-changing initiative later caused a severe backlash. In 2020, the U.S. Securities and Exchange Commision filed lawsuit against Ripple Labs, itc CEO Brad Garlinghouse, and co-founder Chris Larsen, accusing them of conducting an unregistered securities offering. Simply put, the SEC alleged that XRP should have been a security to be hosted as a basis for IPO. The claims ushered in the ongoing heated debate on cryptocurrencies’ legal status which outcome remains obscure.
The long-lasting, up-and-down lawsuit has experienced alleviations and reinforcements throughout its span, but foremostly it impacted the reputation of RippleLabs and their XRP token, which was delisted by highly-reputable crypto exchange Coinbase. Apart from it, the vast number of trial’s stages always altered the alignment of forces. Namely, the pivotal ones are crucial to be highlighted:
- March 3, 2021: Ripple Lab’s CEO Garlinghouse and co-founder Larsen confronted SEC’s fair notice due to the lack of evidence supporting the classification of XRP as a security and failed clear guidance to market participants. This became a trigger for the SEC to take up the steps of trials actively.
- March 22, 2021: XRP token was ruled to possess currency value and utility by Judge Sarah Netburn, which turned the tides of the ongoing case.
- August 31, 2021: the SEC disclosed its internal crypto trading policies, which shed the light on the body’s operations within the case.
- September 17, 2022: Ripple Labs and the SEC filed initial motions for summary judgement, which was wiely considered to be a significant step in the litigations.
- June 12, 2023: Hinman documents which turned out to be the game changer in the legal proceedings were publicly released. This paperwork included the internal communications of William Hinman, the former director of the SEC’s division of Corporation Finance, on the lawsuit between Ripple and the SEC.
The core steps of litigation between Ripple Labs and the SEC led to the admission of legality of IPO actions. Still, claiming recent chain of events to be “a victory” is modestly exaggerated. The allegedly speculative value of XRP, as said by Torres, is being regarded. Consequently, the parties are about to experience another stages of the legal processes.
However, it would be reckless to neglect the pivotal meaning of judge’s statements within the context of crypto regulation collisions.
SEC’s Constant Framework
It is crucial not to forget that the SEC has initiated a great number of lawsuits towards crypto exchanges and their management. In fact, the state body is a unique case in point of structure and legal basis of the litigations which it implements. Remarkably, Asian or European lawmaking institutions tend to use sort of different strategies for crypto’s legal framework, with absolutely different technicalities. The latter one can boast of efficient regulative terms (the UK) or robust crypto companies, which are not impacted by the conservative and vague debate on cryptocurrency’s legal status, namely WhiteBIT, which is certified as the third most-secure exchange over the globe whilst originally operating in the tough legislative climate.
While the U.S. Securities and Exchange Commission tend to coerce to the legislation (while not providing any clarification on the rules), European and Asian regulators target security, credibility, and trustability of the crypto market.
But let’s focus on the SEC. Seemingly they are taking attempts to enable thor control on too unlimited and free asset type with the almost identical accusations to crypto services providers — the absence of cryptocurrency’s registration as a security, or the activity without registration as a broker/exchange/clearing agency.
The recent ongoing SEC’s lawsuit aimed between Coinbase and Binance is the most comprehensive argument in favor of my statements. For instance, the convictions towards Binance and its CEO Changpeng Zhao (CZ) included the lack of registration of Binance and Binance.us as broker-dealer clearing agencies. Additionally, Binance was also accused of listing the tokens which were not securities, i.e. BNB, BUSD, Cardano, Solana, Axie Infinity etc. The resemblance with Ripple Labs case is clear as day. Plot thickens.
Notably, the SEC’s confrontation with Coinbase is way more complex, yet it also took place by an alleged offering of unregistered securities and the infringement of regulative terms — the terms, which Brian Armstrong and his company strongly asked for, but received the denial.
The SEC’s legal enforcement also impacted Bittrex.us — this department went to the wall and ceased to exist due to incriminating operation as an unregistered exchange.
The U.S. Securitites and Exchange Commission’s actions have been the pivotal factor for spoiling American crypto dimension climate. The unfavourable conditions for the industry caused HotBit to stop its operation, citing the troubled market as a core reason for this.
From what has been stated, we are able to conclude the sole scenario or tendency, which is adopted by the SEC: specifically, the non-compliance with the registration of company as an exchange or broker, and the lack of “security” status. The lawsuits, initiated by the state body, would be completely justified initiatives unless the distinct legal framework for crypto entities and currencies was coined. The obscurity in terminology and rules does not give the rights for the SEC to impend the litigations, and accepting this statement within the Ripple’s case perpetuates it in the legal dimension, resulting in enhancement of the US monetary policy overall — and crypto’s vitality over globe.
