SEC Update - Ripple Preliminary Response.

Here's a note I sent to Ripple staff today regarding Ripple's preliminary legal response to the SEC complaint.

Hello, Ripple Team,

Since the SEC filed its complaint in late December, its side has been the only one publicly divided. Our initial response was finally filed today. The "answer" is a legal document (filed publicly) that, as the name suggests, is our official response to the allegations in the SEC complaint. Although it does not fully set out our strategy (more like how it plays out in court), it is our first opportunity to begin to rectify the situation.

Even though the litigation is slow, we are working to get this sorted out as quickly as possible to bring clarity to the broader marketplace. Moving quickly is important because, as you know, since the SEC filed its complaint, XRP has lost nearly half of its market value, causing retail XRP owners with no connection to Ripple - the very people the SEC is trying to protect - to suffer billions in losses. Moreover, part of the SEC's mission is to maintain order in the markets...and yet their overreach has created chaos in the marketplace.

The "response" is a long legal document, but I'll summarize the main points below. It is similar to our Wells Submission summary, which some of you may have read. 

XRP is not a security?

The only question in this case is technical: whether or not Ripple's limited XRP distributions were an investment contract. Obviously, there are no allegations of fraud, misrepresentation, etc. While we have seen some commentators on Twitter claim that this case is not fraud, a first year law student can tell you that there is no such case. This is misleading and irresponsible (not to mention stupid) to even suggest otherwise. Addressing What Matters.... 

In our Reply, we explain why there is no "investment treaty" :

XRP is a virtual currency and therefore outside the jurisdiction of the SEC.

Ripple has never entered into an investment contract with any XRP holders. 

Ripple has never had an ICO, has never offered future tokens to raise money, and has no relationship with the vast majority of XRP holders.

Holding XRP does not mean that a person receives a portion of Ripple's revenues or profits.

Ripple's XRP sales were well under 1% of the massive XRP market that has grown over the past 8 years. 

The XRP ledger, by which XRP actually moves, is completely decentralized. The Securities and Exchange Commission ignores the economic reality of XRP transactions. 

Ripple's XRP holdings do not create an investment contract any more than DeBeers holdings convert diamonds into securities.  

The Securities and Exchange Commission is not standing still, both domestically and globally.

Prior to this case, no securities regulator in the world had said that transactions in XRP should also be registered as securities, and rightly so. XRP's functionality and liquidity are completely incompatible with securities regulation. Requiring XRP to be registered as a security would diminish its basic usefulness.

In fact, regulators in the U.S. government (the Department of Justice and FinCEN) determined in 2015 and 2020 that XRP is a virtual currency, and have been regulating it as such ever since. Basically, on its way out, the Trump administration tried to overturn the determination that XRP is a virtual currency made during the Obama administration.

Globally, the same can be said for regulators-the British Financial Conduct Authority, and regulators in Singapore and Japan have concluded that XRP is a virtual currency or crypto-asset, not a security. With its complaint, the SEC is asking the Court to rebut the findings of fellow agencies in the U.S. and around the world. 

The SEC picks winners and losers.

Although XRP is the most efficient digital asset for global payments benefiting consumers worldwide (and the most sustainable crypto material), there is no fundamental difference between XRP's current function and that of BTC or ETH. How does the SEC explain telling the public that BTC and ETH are not securities, then turn around and claim that the opposite is true for XRP?

What is particularly interesting here is that at one point the SEC stated that ETH may have been born as a security, but eventually turned into a non-security, without offering any guidance or framework for such a definition. We simply ask that the rules be clearly stated and that those rules be applied consistently across the board. We have sent a request to the SEC asking for more information on how the ruling was made in hopes of getting a clearer picture of how they arrived at the original