In the Ripple – SEC case, Ripple Labs has received backing from the US-based crypto advocacy group Blockchain Association, which claims that the case could be crucial for the future of the crypto industry.
Blockchain Association declared in a post on October 28 that it would “stand” with the American cryptocurrency industry by submitting an amicus brief, often known as a “friend of the court” brief, in the SEC enforcement case against Ripple.
In December 2020, the SEC said it would sue Ripple, former CEO Christian Larsen, and current CEO Brad Garlinghouse for allegedly raising $1.3 billion through unregistered securities sales using XRP. This announcement was made almost two years ago.
“This case, which is just one in a long line of SEC efforts to regulate by enforcement, highlights the SEC’s efforts to cement and legitimize its overly broad interpretation of the Howey test,” wrote the association.
What meets the criteria for an investment contract and is consequently covered by US securities laws is determined by the Howey Test.
The Blockchain Association explained in its brief why they believed Gary Gensler, the chairman of the SEC, and his views on securities rules could have “devastating implications” on the cryptocurrency business.
They contend that blockchain technologies have a wide range of applications in the cryptocurrency sector, including the ability to maintain inventories, transfer intellectual property rights, pay for goods and services, and more.
“Applying the securities laws to those tokens – whether or not through the prism of the Howey test – would significantly restrict those networks from functioning.”
The group further asserts that the SEC is rejecting unequivocal rulings from the Supreme Court and the Second Circuit that international transactions fall outside of its purview.
“Though the blockchain industry is global in nature, the federal securities laws are not. The Second Circuit has repeatedly re-emphasized the Supreme Court’s lesson on this subject.”
“Accordingly, both for liability and (if necessary) damages purposes, this Court should be mindful of the limits of the securities laws,” it added.
The SEC’s interpretations of the securities laws, according to Kristin Smith, executive director of the Blockchain Association, are “the single greatest threat to the future of this rapidly growing industry.” She believes this case could have significant repercussions for the future of cryptocurrencies.
“The SEC maintains its “regulation by enforcement” practice, punishing crypto firms with little explanation or warning, by inconsistently applying these antiquated criteria to a contemporary and creative technology,” she said.
According to the Blockchain Association, the case presents an opportunity for the sector to fight back against what they term the “SEC’s regulation by enforcement agenda” and could pave the way for more contemporary norms in the sector.
