As Paul Atkins is set to replace Gary Gensler at the SEC, a new warning from JW Verret suggests that the agency risks severe consequences if it doesn’t drop the Ripple case.
When the SEC launched its crusade against cryptocurrency, it didn’t expect to face resistance from the federal judiciary itself. The federal judges are challenging the SEC’s aggressive interpretation of old securities laws, which may eventually lead to the Supreme Court getting involved.
The dispute began with the SEC’s 2020 lawsuit against Ripple Labs, claiming the XRP token was an unregistered security. However, Judge Analisa Torres ruled that XRP sales on public exchanges were not securities transactions, a decision the SEC is appealing.
Judge Jed Rakoff’s Interpretation Could Have Serious Consequences
Judge Jed Rakoff took a broader view in the SEC’s case against Terraform Labs, suggesting that crypto tokens could be considered securities no matter how they are sold. This difference in judicial opinions has created legal uncertainty, which may lead to the Supreme Court stepping in.
Notably, Judge Rakoff’s interpretation could have serious consequences for the crypto industry. His view of the Howey test suggests that even trades of Luna tokens by people unrelated to Terraform could be considered securities.
Lack Of Boundaries Raises Concerns
If this reasoning is followed further, even Bitcoin could be considered a security because its developers maintain the network. This could result in a broad expansion of SEC control, affecting everything from precious metals to airline rewards programs. This lack of clear boundaries raises concerns among legal experts and market participants.
The SEC’s appeal of the Ripple case could lead to problems, which could usher the Supreme Court to step in. The case could be used to limit the SEC’s power, stopping it from making decisions without clear approval from Congress.
SEC’s Approach Could Backfire
Coinbase is also battling the SEC, with the court questioning the SEC’s refusal to set clear rules for crypto trading, which could lead to Supreme Court involvement. By using the Howey test too broadly against legitimate crypto companies like Ripple, Coinbase, Kraken, and Uniswap without clear rules, the SEC risks limiting this important legal tool through Supreme Court intervention.
The SEC’s aggressive approach to cryptocurrency could backfire and harm its own authority. By continuing its appeal in the Ripple case and not providing clear rules, the SEC may prompt the Supreme Court to limit its powers. This could weaken the SEC’s ability to regulate crypto and impair its long-term goals, especially after the 2024 elections.
