By Brenda Collins
In a recent news report, an Australian cryptocurrency law professional, Bill Morgan, stated that the recent victory that Ripple Labs had over the United States Securities and Exchange Commission had prevented the commission from grouping all alternative coins as securities.
According to the report, attorney Bill Morgan has shared his thoughts on how Ripple’s fierce fightback against the SEC has saved the commission from classifying all crypto tokens except Bitcoin as security. He admitted that even though the case did not establish a legal precedent, they however curbed the SEC from overpowering the crypto industry through its enforcement action.
The crypto law expert pointed out that the ongoing case was very significant as the whole 16,000 plus cryptocurrencies apart from BTC would have been automatically classified as securities if Ripple Labs had not staged a legal fightback against the SEC.
Morgan highlighted that despite the court ruling that Ripple’s native coin, XRP, is not a security, it is yet uncertain what the outcome of Ripple’s sales of XRP would be as the commission has decided to appeal against the initial judgment. In his statement, the lawyer wonders if Ripple Labs could relax in the meantime before any significant decision is finally declared on the case.
In addition, Morgan said that it is discernible that the Liquidity Hub of Ripple had to back cryptos like BTC, ETH, USDT, and USDC while leaving its native coin, XRP, out. He explained that the firm’s primary priority now is to serve its customers and shareholders over XRP holders.
Reiterating SEC’s Legal Battle Against Ripple Labs and XRP
The legal brawl began in December 2020 with the SEC charging Ripple Labs and its two top executives, Bradley Garlinghouse and Christian Larsen, for sales of unregistered XRP tokens. In addition, the commission claimed that the crypto firm violated Section 5 of its 1993 Securities Acts. The two executives were implicated in the lawsuit for conducting these violations.
However, in July 2023, Judge Analisa Torres of the Southern NY District Court declared a verdict that XRP is not a security contrary to the SEC’s claims, thereby ruling in favor of Ripple Labs. In addition, Judge Torres stated that the programmatic sales of XRP by Garlinghouse and Larsen in 2020 were conducted on a third-party exchange anonymously.
Hence, she ruled that the sales were not in any form to be considered investment contracts using the Howey Test standards. She also pointed out that XRP is a digital token and not a security as it did not meet the Howey description of an investment contract. In addition, she ruled that the sales of XRP on secondary markets by Ripple cannot be classed as investment contracts because the proceeds from the sales can’t be linked with the firm.
SEC Issued Lawsuit Against SC2 For Unregistered NFTs Sales
Meanwhile, on 13 September, the SEC filed a lawsuit against SC2 (Stoner Cats 2 LCC) for offering unregistered Non-fungible Tokens (NFTs), which is considered illegal by the commission. According to the report, the NFT collection was developed after the popular cartoon series Stoner Cats, and each token sold for $800.
Reports showed that in July 2021, SC2 realized about $8 million from the offering of its NFTs collection in 35 minutes. Regarding the event, the SEC remarked that SC2’s marketing strategy triggered massive and rapid sales, which shows investors’ strong interest in the project.
Analyzing SC2’s marketing strategy, the SEC claims that the firm advertised enticing benefits for holders of Stone Cats NFTs, adding that owners can resell their NFTs in the secondary market for higher gains. In addition, the commission pointed out that SC2 has designed its NFTs such that for each secondary sale, the company receives a 2.5% royalty, which spurs more sales and purchases. During the event, a $20 million expenditure in 10,000 transactions was recorded.
In conclusion, the SEC declared that SC2 had breached the 1993 Securities Act of sales of unregistered NFTs. To alleviate the issue, SC2 agreed to cease and desist order from the SEC and also paid a civil penalty of $1 million. In addition, affected investors would receive repayments via a Fair Fund scheme, and finally, the firm agreed to destroy all its minted Stoner Cats NFTs.
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