Ripple ruling is likely to be appealed and overturned, ex-SEC official says

The Ripple ruling is “ripe for appeal” and likely to be overturned, former SEC internet executive director John Reid Stark said on LinkedIn. director July 14th.

The court ruling, which Cameron Winklevoss has hailed as a turning point, “is in a precarious position,” Stark wrote.

Ripple Court’s Ruling Is ‘Troubled On Multiple Faces’

According to Stark, the court’s ruling in the Ripple case is “problematic on many fronts.” He wrote that the ruling “seems to go against the SEC’s mandate” to protect investors.

The court ruled that XRP was sold to institutional investors as a security. Ripple’s ruling therefore gives the institutional investor his SEC protection. However, Stark noted that the court ruled that XRP sold on cryptocurrency exchanges is not a security, so the ruling does not protect retail investors.

Ripple’s decision therefore creates a “class of quasi-securities” that “discriminate and transform” based on how sophisticated investors are. This discrimination is “counterintuitive, inconsistent with SEC case law, and unprecedented in this context,” Stark wrote.

Furthermore, the court’s ruling declared that tokens sold through exchanges are not securities because customers of the exchange “are presumed to know nothing about cryptocurrency issuers,” Stark said: added as

“But simply investor ignorance or unwillingness to investigate does not serve as an effective defense against securities breaches.”

Stark further said the ruling was “not just condescending, it’s just an insult,” as he presumes that “individual investors are typically stupid.”

Moreover, Stark believes that retail investors are not as ignorant as the court’s ruling presumes. He bought XRP because a private investor believed that Ripple would drive the price of XRP higher, even though he didn’t know he was funding Ripple, he wrote.

According to Ripple’s decision, if retail investors do not know the token issuer and the issuer does not know who is buying the token, the token is not a security, Stark wrote. But “the question is whether investors, known or unknown, can expect to profit from third-party efforts,” he said.

Stark further asked:

“A token that is a security when sold to an institutional investor somehow miraculously changes when the institutional investor or the issuer itself sells the token on Coinbase or Binance.” Why does it become like “No?”

Mr. Stark says capsizing is likely

The Ripple Court decision is a partial summary judgment by a single district court judge. Stark said the ruling was “important” and “worthy of study,” but “does not bind precedents of other courts.”

He added that Ripple’s ruling will likely be appealed. Further, he wrote, “given the unprecedented nature of the ruling,” the court would likely grant immediate interlocutory appeals and the Second Circuit would hear the appeals.

“The bottom line is that inventory is always inventory, and it never transitions to an ‘out of stock’ state. Therefore, in my view, the SEC will appeal the Ripple ruling to the Second Circuit, which will reverse the District Court’s rulings on “programmatic” and “other sales.” .

But it’s worth noting that Kayvan Sadeghi, a cryptocurrency attorney and member of the Wall Street Blockchain Alliance, said Stark’s argument “misses or ignores” key points. is.

Sadeghi said the court’s ruling did not designate XRP as a security, so XRP’s designation will not change. As Coinbase Chief Legal Officer Paul Grewal pointed Out, the ruling states, “XRP, as a digital token, is not a ‘contract, transaction’ per se. ”

Sadeghi elaborated that it is possible to build an investment contract around any asset and include the token sale as part of the investment contract transaction. However, the tokens themselves “do not embody the context of those transactions, nor are they securities in and of themselves,” Sadegi said. I have written.