One of the most landmark cases, and perhaps the most fundamental cases shaping crypto regulation, was witnessed between Ripple, the cryptocurrency company behind XRP, and the US Securities and Exchange Commission (SEC), which may finally be reaching its conclusion. It indeed might be one of those cases that changes the new leadership of the SEC with a new regulatory strategy.
Last month, attorney Jeremy Hogan posted on social media some of his observations regarding possible shifts in the SEC’s litigation with Ripple and possibly other firms in the cryptosphere like Coinbase. Hogan pointed out the possibility of a very early exit of SEC Chairman Gary Gensler before his term would reach its expiry date.
This change in the U.S. government introduces new leadership at the SEC whose regulatory policies may now take another direction, especially on cases strictly related to non-fraud aspects of crypto practices.
This could be a leadership shift that might finally lead to a different possible outcome for Ripple. With a successor friendlier to non-fraud cases, Hogan said the SEC might settle or even dismiss some of its lawsuits. The SEC is composed of three Republican-appointed commissioners, which may position them to take a dramatically different approach from the aggressive enforcement model that defined Gensler’s tenure.
Key Legal Decisions in XRP Battle With the SEC
Last year, the SEC sued Ripple in December alleging sales of XRP represented unregistered securities offerings. That is a pretty brightening case considering the futility of using traditional securities laws to regulate cryptocurrencies.
The case between the former and the SEC took a very significant ruling in July 2023 wherein Judge Analisa Torres ruled that institutional sales by Ripple of XRP constitute securities but ruled out its programmatic sales that happened through public exchanges.
This mixed verdict initiated landmark precedent to distinguish various categories of cryptocurrency transactions. The SEC appealed the verdict, with the concern that it may weaken the power of the agency over other digital assets. The battle is still on as a landmark legal case, and its eventual resolution will determine the future of U.S. crypto regulations.
Settlement Expectations for Ripple’s Case
As Hogan states, in case the SEC would alter its approach to a more settlement-oriented policy, Ripple’s lawsuit would likely be settled with minimal prolonged litigation. Hogan presumed that the case would be settled at the rewarded judgment of $125 million. Hogan assumed that an offer to settle on a lesser amount would be “awkward” compared with what the court has already imposed.
Hogan admitted that the new direction by the SEC towards non-fraud cases may indeed make legal processes easier, but these changes are not going to arrive overnight. He estimated that several months would be needed to make great headway on Ripple’s case and possibly to settlement mid-2024.
The Impact of “Regulation by Enforcement” Under Gensler’s Leadership
Gensler’s tenure as an SEC Chair is marked by a “regulation by enforcement” approach. He has been appreciated and criticized at the same scale. Those supporting his aggressive approach to enforcement through stating that this has brought more protection to investors and ensured that compliance remains strictly guaranteed as the crypto market continues to change rapidly.
However, his critics argue that the strategy of regulation by enforcement has even resulted in limiting innovation, as crypto firms fear establishing their footprints in the US.
The Ripple case illustrates how regulatory friction bogs down innovation and compliance. As the industry goes further and wider, there is growing consensus that digital assets could and ought to be separately regulated under bespoke regulatory frameworks separate from traditional security laws.
SEC Commissioner Hester Peirce, famously referred to as “Crypto Mom” because of her pro-crypto views, has been arguing for clearer, more bespoke rules, rather than relying entirely on enforcement actions.
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