Jump to content

Recommended Posts

14 minutes ago, Frisia said:

but I doubt if anyone would invest in a company that has a lack of revenues.

Didn't Uber IPO before making any profit? Facebook and Twitter too? I'm not sure, just asking. I think there are many more in today's market that have IPOd on potential only. Could be wrong?

Edited by VanGogh
Link to post
Share on other sites
  • Replies 190
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Popular Posts

I need to clarify this after some more thinking about the topic and having listened to a number of different views on the issue. Just to go back to what Hellerstein said in the Kik judgement: T

https://ripple.com/wp-content/uploads/2020/12/Ripple-Wells-Submission-Summary.pdf Summary of Ripple’s Wells Submission I. Introduction A. The SEC’s theory, that XRP is an investment c

Ripple needs to show that XRP is not a security by demonstrating that the Howey test does not apply to XRP. They will probably also try any other legal manoeuvre available to chip away at the evidence

1 minute ago, VanGogh said:

Didn't Uber IPO before making any profit? Facebook and Twitter too? I'm not sure, just asking. I think there are many more in today's market that have IPOd on potential only. Could be wrong?

Well yes, but there is a substantial difference between profits and revenues. Also Tesla shows that you can survive a long term without profits, but revenues are the first requirement for any business.

Link to post
Share on other sites
4 minutes ago, Frisia said:

Well yes, but there is a substantial difference between profits and revenues. Also Tesla shows that you can survive a long term without profits, but revenues are the first requirement for any business.

True enough. Ripple's software without using XRP still offers great savings and efficiencies. It would be complicated but I think they could still IPO. 

Link to post
Share on other sites
45 minutes ago, cmbartley said:

This is purported to be relevant case law:

https://casetext.com/case/silver-hills-country-club-v-sobieski

Is there a reason why you think this might be relevant? I'm wondering if it will be easier and more relevant to read the Kik judgement?

In Kik, Justice Hellerstein summarised the relevant case law and also provided his logic as to how it extended to the Telegram ICO for each limb of Howey. It's the first time any Judge in the US has gone into depth on the issue and Hellerstein is no lightweight so it has important precedential value.

In fact, if people haven't read Kik and Telegram, I don't see how they can comment on the current matter against Ripple. This case is being brought before the same courts in New York that heard both Telegram and Kik. And it's even possible it will be heard by one of the same justices.

Link to post
Share on other sites
On 12/28/2020 at 1:28 AM, Julian_Williams said:

https://ripple.com/wp-content/uploads/2020/12/Ripple-Wells-Submission-Summary.pdf

Summary of Ripple’s Wells Submission I.

Introduction

A. The SEC’s theory, that XRP is an investment contract, is wrong on the facts, the law and the equities.

B. To prove its case amounts to an unprecedented and ill-conceived expansion of the Howey test and the SEC’s enforcement authority against digital assets.

C. The SEC’s theory that XRP is an investment contract ignores the economic reality that XRP is, and has long been, a digital asset with a fully functional ecosystem and a real use case as a bridge currency that does not rely on Ripple’s efforts for its functionality or price. D. XRP is a currency. XRP is similar to bitcoin and ether, which the SEC has determined are not securities.

  1.   By alleging that Ripple’s distributions of XRP are investment contracts while maintaining that bitcoin and ether are not securities, the Commission is picking virtual currency winners and losers, destroying U.S.-based, consumer-friendly innovation in the process.

E. This case is distinguishable from the Initial Coin Offering (“ICO”) and/or Simple Agreements for Future Tokens (“SAFTs”) cases that the Commission has brought previously, which involved no developed ecosystem or established utility for the underlying asset, and where the tokens were sold directly to purchasers by the issuer based on promises of profits and ongoing efforts that were articulated in white papers and other forms.

II. Factual Background

A. XRP is a fully functional currency that offers a better alternative to bitcoin.

  1.  XRP is a widely adopted digital asset based on an open-source blockchain technology, with an extremely robust, fully-functioning currency market. XRP consistently ranks among the top three virtual currencies by market capitalization—alongside bitcoin and ether, the two Chinese-controlled virtual currencies that the SEC has stated are not securities.
  2.  XRP has been trading in secondary markets since 2013.
  3.  The secondary market is massive—approximately $700 billion to $1 trillion in total trading volume since 2013—and operates separate and apart from Ripple.
  4.  XRP is traded between fiat and other virtual currencies on more than 200 exchanges globally, the vast majority of which have no connection to Ripple whatsoever.
  5.  XRP transactions take place on the XRP Ledger (“XRPL”), a decentralized, cryptographic ledger powered by a network that is not controlled or owned by any one party. The XRPL has successfully recorded hundreds of millions of transactions for over eight years without error or dispute.
  6.  Through the consensus process, validators must agree on specific transactions for inclusion in the blockchain. During consensus, each server evaluates proposals from a specific set of trusted validators, or Unique Node List (“UNL”). Users are free to use any UNL they prefer and anyone can run a node or validator. Ripple does not control anywhere near a supermajority of validators and changes to the Ledger have been adopted despite Ripple’s dissent (e.g., a recent change adding virtual checks that Ripple opposed).
  7.  The consensus validation process prevents any single actor from unilaterally owning or controlling the XRPL. Consensus enables XRP to serve as a faster and cheaper means of closing transactions compared to other digital assets, and largely eliminates the risk of centralized control by any one party.

B. Ripple is a responsible and transparent actor.

  1.  Years before the SEC’s July 2017 DAO Report, Ripple relied on expert advice and regulatory pronouncements that XRP was a virtual currency and not a security.
  • (a) In 2015, DOJ and FinCEN settled a case with Ripple and determined that XRP was a convertible virtual currency and Ripple was a money transmitter of XRP. The settlement required Ripple’s XRP transactions to comply with laws that do not apply to securities transactions.
  1.  
  2.  Since 2017, around 90% of Ripple’s XRP holdings have been held in an inaccessible escrow, which Ripple voluntarily proposed and cannot unilaterally terminate. The escrow is intended to standardize the supply of XRP that could come from Ripple, even during times when the price and volumes of XRP have increased.
  3. Ripple’s On Demand Liquidity product (“ODL”) uses XRP as a bridge currency to address inefficiencies in cross-border payments, allowing for dramatic improvements over legacy payment systems.
  • (a) Traditional cross border transfers typically take two days to complete, whereas ODL transactions complete in minutes.
  • (b) ODL provides cost savings by freeing up capital held in correspondent bank accounts and significantly reduces transaction costs associated with remittance payments.
  • (c) Both the International Monetary Fund (“IMF”) and the Consumer Financial Protection Bureau (“CFPB”) have recognized the consumer benefits of ODL.
  • (d) ODL incentives were offered to develop a better experience for customers and to drive scaling and adoption of ODL. Short-term incentives are consistent with standard practices to stimulate growth in network markets. The incentives and rebates have decreased significantly since 2019.
  • (e) Extensive data analysis shows that ODL-related announcements have not impacted the price of XRP.

 

C. Ripple’s XRP sales were only ever a minute fraction of overall XRP trading. In the past, Ripple’s sales were mostly done through foreign market makers who brokered blind bid/ask trades on certain cryptocurrency exchanges, the vast majority of which are located outside the United States, or via OTC transactions mainly to institutional, third-party entities via contracts that did not include any promise of profits or promise to increase the price of XRP. Ripple’s sales are now limited to sales to ODL customers for use in the product.

  1. Ripple’s sales were consistently a fraction of one percent of the overall trading volume. Throughout 2018, Ripple’s XRP sales represented only 0.095% to 0.43% of the global XRP volume, and, in the first quarter of 2019, those sales amounted to 0.22% of the overall trading volume.
  2.  Ripple took precautions not to impact XRP’s price and to minimize any perception that it would do so.
  3.  Ripple stopped all programmatic sales and almost all OTC sales in September 2019. In May 2020, Ripple began selling XRP to customers for use in connection with ODL after fully disclosing to the SEC its intent to do so.

D. XRP is used as a currency by as many as 150 third party commercial and consumer applications for a variety of purposes.

E. Extensive data analysis shows that XRP’s price correlates to that of the other leading digital assets—not to Ripple’s announcements or news about its business. The data show that XRP’s price has not been impacted by Ripple’s public announcements which means the market does not believe that Ripple’s efforts translate into an increase in the price of XRP.

  1.  Unlike prior ICO enforcement actions, this case will be the first time that the SEC has to refute years of trading data that fundamentally undermines its theory.

III. The Howey Test.

A. As a threshold matter, it would be unprecedented to bring a case against Ripple based on XRP sales that took place before the July 2017 DAO Report, especially in a case where the SEC is not alleging fraudulent conduct.

B. XRP is a currency, as the DOJ and FinCEN determined in 2015.

  1.  Currencies are excluded from the statutory definition of a security. Digital assets like XRP that operate as a medium of exchange, unit of account, and/or a store of value are properly categorized as currencies.
  2. XRP’s functional characteristics and longstanding utility as a replacement for fiat currency require that it be categorized as a currency and not a security. XRP trades in a robust currency market, with massive volumes of traders, the vast majority of whom have never transacted with Ripple. C. XRP does not satisfy the Howey test.

1. Before even getting to the Howey analysis, XRP is not an investment contract because there is no “contract” underlying any “investment contract.”

  • (a) We are not aware of a single case in the more than 70 years since Howey that has found an investment contract absent a contract or privity between the buyer and seller. Here, the vast majority of XRP trading has taken place on the secondary market, wholly independent of Ripple, with no contract or privity with Ripple.

2. Ripple is not a common enterprise of XRP purchasers.

  • (a) Horizontal commonality requires that proceeds from sales be pooled to support the investment that will result in the distribution of profits.
  • (a) There has been no “pooling” here as required by horizontal commonality.
  • (b) Other than a small fraction of one percent, XRP trading did not and does not involve Ripple and therefore the proceeds of those sales were not, and could not be, pooled by Ripple.
  • (c) Ripple’s sales of XRP into the secondary market were made to purchasers who did not know from whom they were buying (and Ripple did not know to whom it was selling) and thus there was no pooling of proceeds, as required by the law.
  • (d) The Second Circuit has rejected broad vertical commonality and has not explicitly adopted strict vertical commonality.
  • (e) In any event, there is no vertical commonality here where the fortunes of XRP holders are demonstrably not intertwined with Ripple and its efforts, but instead hinge on independent market forces as it does here, which is overwhelmingly supported by the data.

3. There is no reasonable expectation of profits by XRP purchasers based on the efforts of Ripple.

  •  (a) Ripple does not and has not promised to increase XRP’s prices in public statements. Ripple’s overall messaging regarding XRP has been entirely consistent with that of a company that uses a currency for payment solutions. Ripple has made clear that its efforts relate to increasing the liquidity of the XRP market for ODL’s benefit and not to increase the price of XRP.
  • (i) The SEC’s focus has been on the subjective intent of the XRP purchaser. But subjective intent does not control. Rather, courts consistently hold that the test is an objective inquiry into what the purchasers were actually offered or promised.
  • (ii) In other words, the mere fact that a purchaser believes a party may undertake efforts to drive an asset’s value is not enough to satisfy the Howey test, especially when that other party is not obligated to act in the way that the purchaser hopes and especially when the purchaser is a downstream, secondary market participant with no relationship or privity with the other party.
  • (b) Ripple’s interaction with the third party XRP community does not constitute “efforts of others.” (i) The XRPL’s decentralized nature precludes XRP purchasers from reasonably relying on Ripple’s efforts to increase the price of XRP.
  • (c) Ripple’s promotion of ODL—and other products—is related to its business, not to XRP. Ripple is trying to increase demand for its products, some of which use XRP and others which do not, not the price of XRP. (i) Extensive data analysis demonstrates that XRP purchasers neither rely on Ripple’s efforts nor reasonably view XRP as an investment in Ripple. (ii) Most ODL transactions are demand-neutral (each involves the purchase and sale of the exact same amount of XRP in a short time) and therefore do not impact the price of XRP.
  • (d) Ripple’s sales to its customers for use in ODL do not, and cannot, violate Section

5. When a purchaser is not “‘attracted solely by the prospects of a return’ on his investment . . . [but] is motivated by a desire to use or consume the item purchased . . . the securities laws do not apply.” Forman. (e) Ripple’s XRP holdings do not convert XRP into an investment contract nor do they mean that XRP holders have a right to rely on Ripple’s efforts or that any such reliance is reasonable.

(i) Many entities own large amounts of commodities and participate heavily in the commodities markets—Exxon holds large quantities of oil, De Beers owns large quantities of diamonds, Bitmain and other Chinese miners own a large percentage of outstanding bitcoin. And all three have an interest that may be aligned with purchasers of the underlying asset. But no one credibly argues that those substantial holdings convert those commodities or currencies into securities.

D. Information asymmetries are not part of the Howey analysis, but in any event, there are no material asymmetries between Ripple and XRP holders.

  • 1. Ripple has been transparent about its activity in the XRP market by publishing quarterly XRP Market Reports, disclosing its incentive programs, and being incredibly transparent in other respects.
  • 2. Extensive data analysis demonstrates that Ripple’s disclosures and press releases do not move the price of XRP, indicating the market does not consider news about Ripple material.

IV. Policy reasons counsel against finding XRP to be an investment contract.

A. Innovation in the cryptocurrency industry will be fully ceded to China. The Bitcoin and Ethereum blockchains are highly susceptible to Chinese control because both are subject to simple majority rule, whereas the XRPL prevents comparable centralization.

B. An expansive application of Howey will have a chilling effect on the entire blockchain industry. This would make it impossible for any company to develop and promote a digital asset without running afoul of the securities laws, even where the company has never sold the asset as an investment, like Ripple.

C. No foreign regulator has determined that XRP is a security. In fact just the opposite is true. The U.S. would be the unfortunate outlier.

The defense is poor to be honest. 

Link to post
Share on other sites
12 minutes ago, Pablo said:

Is there a reason why you think this might be relevant? I'm wondering if it will be easier and more relevant to read the Kik judgement?

In Kik, Justice Hellerstein summarised the relevant case law and also provided his logic as to how it extended to the Telegram ICO for each limb of Howey. It's the first time any Judge in the US has gone into depth on the issue and Hellerstein is no lightweight so it has important precedential value.

In fact, if people haven't read Kik and Telegram, I don't see how they can comment on the current matter against Ripple. This case is being brought before the same courts in New York that heard both Telegram and Kik. And it's even possible it will be heard by one of the same justices.

I haven't but I will check it out when I have time. I found that case here: https://www.theblockcrypto.com/post/36201/xrp-the-more-things-change-the-more-they-stay-the-same

 

Link to post
Share on other sites
9 minutes ago, Pablo said:

Is there a reason why you think this might be relevant? I'm wondering if it will be easier and more relevant to read the Kik judgement?

In Kik, Justice Hellerstein summarised the relevant case law and also provided his logic as to how it extended to the Telegram ICO for each limb of Howey. It's the first time any Judge in the US has gone into depth on the issue and Hellerstein is no lightweight so it has important precedential value.

In fact, if people haven't read Kik and Telegram, I don't see how they can comment on the current matter against Ripple. This case is being brought before the same courts in New York that heard both Telegram and Kik. And it's even possible it will be heard by one of the same justices.

Hi @Pablo, thank you for all your insight. Since your responses are scattered across the forum, I’ll just use this topic to highlight Kik//Kin case, since you also mention it in your post. I know you pointed out that Kin was never declared NOT a security, but what do you think of the final settlement on October 22nd between Kik and SEC, would that not be a preferable outcome for Ripple as well, or is their case too different?

 

Kik statement after settlement (text bolding is my own - https://medium.com/kinblog/a-new-chapter-begins-in-the-life-of-kin-and-the-kin-foundation-ddd26cb7ff50):

“Concurrently, the future of the Kin Foundation is not adversely affected. The SEC has not asked to register Kin as a security, and didn’t impose trading restrictions on it. Prior to this settlement there had been questions from exchanges if they could list Kin which hindered Kin’s ability to get on top tier exchanges. The judge’s ruling in the case and the terms of the settlement make it clear that the Kin cryptocurrency is not in violation of any securities law and should be free to trade on exchanges.”

 

Official settlement document: https://www.courtlistener.com/recap/gov.uscourts.nysd.516941/gov.uscourts.nysd.516941.90.0.pdf

Link to post
Share on other sites

Hi everyone. I would like to ask @Pablo some questions cause I know he is an expert on this here.

 

The differences I see in regard to Kik case. Kik had an ICO after SEC 2017 DAO report and at that time no ecosystem yet built.

In the SEC-Ripple lawsuit, as I understand and please know I am no lawyer, the main focus is on Ripple's sales of Xrp being an investment contract. They, SEC, say from at least year 2013....can they go as far back? I mean before the SEC DAO report in 2017? Or it can only apply from 2017 till today?

Do you think if it comes to time frame 2017 till now it will be harder to justify Ripple sales of xrp with howey test (developed ecosystem and customers talking about its use case - faster and cheaper cross-border transactions)? 

Am I understanding it correctly?

Edited by Twinme
Link to post
Share on other sites
1 hour ago, QWE said:

I know you pointed out that Kin was never declared NOT a security, but what do you think of the final settlement on October 22nd between Kik and SEC, would that not be a preferable outcome for Ripple as well, or is their case too different?

Maybe I've misunderstood but Kin, the tokens were conclusively declared an unregistered security by the court:

Quote

Thus, I hold that the Pre-Sale, and the TDE sale to the general public, constituted an unregistered offering of securities that did not qualify for exemption under Rule 506(c)

It doesn't get clearer than that.

The Kik settlement certainly has some curious language in it which often happens in negotiated documents with different authors. I've read the Kin announcement but it doesn't seem to reflect what the court ordered or even what the settlement described. It is peculiar wording for sure but with the 45 days' prior notice requirement, the SEC could simply injunct Kik every time they attempted to sell Kin without the appropriate registrations in place as required in paragraphs (a), (b) and (c) of the settlement.

The Ripple case is a bit different because XRP is being used for a specific purpose in ODL corridors and having XRP viewed as a security creates additional cost and tax implications for money makers and financial institutions using it as a bridge currency. In the case of Kin, the tokens are mainly used by individuals within the Kik ecosystem and for speculative trade.

Ripple is also playing in a different sandpit with a more sophisticated client. I can't imagine a bank or remittance company looking at the Orders and agreeing with Kik that:

Quote

"The judge’s ruling in the case and the terms of the settlement make it clear that the Kin cryptocurrency is not in violation of any securities law and should be free to trade on exchanges."

As I said - Kin's announcement is very curious. If Kik is so sure about Kin's designation, why say "should be", not "is"? That leaves the exchanges exposed to litigation by the SEC and Kik would probably say "your problem, not ours". Banks and remittance companies will be more scrupulous and risk averse.

I think I've mentioned elsewhere that the SEC has not requested confiscation of Ripple's holdings of XRP. Just how Ripple would sell their XRP if they reach a Kik-type settlement is an important question and may be the reason Ripple couldn't reach agreement with the SEC.

Link to post
Share on other sites
22 hours ago, RikkiTikki_is_Back said:

Short for not having a life especially if you find XRPChat entertaining.  I know the pandemic has been rough but man If I took time out to troll all things I don't like or think little of on a regular basis I would be questioning my own sanity "I don't have the energy or the time, but to each it's own."

I have adopted 5 kids, trust me, my life is full.  Sounds like you are a bit jealous that I made the right choice and made a good profit and you are probably still wishful thinking. 

Link to post
Share on other sites
1 hour ago, dontsellmeadog said:

I have adopted 5 kids, trust me, my life is full.  Sounds like you are a bit jealous that I made the right choice and made a good profit and you are probably still wishful thinking. 

Not a all but you just made a statement that really makes me wonder if you have a life, 5 kids and your here trolling the Xrpchat forum??? I have 4 but their all adults and 2 dogs.  I have been off of here for damn near a year just recently getting back on.  Now I envy your idle time do tell us your secret???  What's the formula for having a full life with time enough to troll?? 

Link to post
Share on other sites

Could we expect some help from politicians?? We all know and there is common awareness that the US lags behind in innovation and the Ripple case is one of the few Blockchain fintechs with a working solution although in a sort of start up, but promising and with potential.

Could there be pressure coming from the new administration, being aware that there's work to do and the US cannot permit to lose further terrain? Something like: "Hé guys, find a solution to solve this matter, and fast!"

I know lobbying was already mentioned, but is there any chance of fresh air coming in 2021? Frankly speaking, destroying billions of investments and putting at risk a company's world wide business is a very tough and perhaps disproportional measure, by the way with substantial doubts (and lacks) and there could be someone who's not happy with such an approach.

Edited by Frisia
Link to post
Share on other sites
21 hours ago, Frisia said:

Could we expect some help from politicians?? We all know and there is common awareness that the US lags behind in innovation and the Ripple case is one of the few Blockchain fintechs with a working solution although in a sort of start up, but promising and with potential.

Could there be pressure coming from the new administration, being aware that there's work to do and the US cannot permit to lose further terrain? Something like: "Hé guys, find a solution to solve this matter, and fast!"

I know lobbying was already mentioned, but is there any chance of fresh air coming in 2021? Frankly speaking, destroying billions of investments and putting at risk a company's world wide business is a very tough and perhaps disproportional measure, by the way with substantial doubts (and lacks) and there could be someone who's not happy with such an approach.

Here is what I think. Its not that crypto came into existence yesterday or something like that. I'm sure that the US government quickly became aware of Satoshi's work. Now fast forward to where we are today. The lack of clarity and the absence of action from law makers clearly says it all. The Obama administration didn't offer clarity. The Trump administration didn't offer clarity. And here we got this pickle and the whole industry in the US is in a weird state of limbo. What exactly is allowed and not allowed? "Well - we cant tell you!"

Crypto challenges the US hegemony. Crypto is decentralized and this is something governments cant control. They don't want innovation in this industry, but rather they want to make everything more difficult. One example is the recent FINCen wallet rule. https://cointelegraph.com/news/heavy-hitters-of-crypto-call-for-users-to-comment-on-proposed-fincen-wallet-rule

The USD is a big Ponzi scheme with none-stop printing from the Federal Reserve and not to mention the enormous debt that will only get bigger.  People's hard worked money gets undermined daily and its not strange that people move some of their assets to crypto. Yes, crypto might be a bubble but at least you cant "print" more just like that.  This is new paradigm and in the end this is war that the US government will lose.

Link to post
Share on other sites

I can understand when the SEC is after ICOs and here I am on the side of the SEC.

But XRP, BTC, and ETH have fully functional matured ledgers unlike ICOs. Incidentally, XRP is much older than ETH and, in contrast to the BTC "payment" ledger, has the higher-performance, more environmentally friendly and more cost-effective technology behind it.

All three use their respective ledger currency among other things as spam protection in the form of transaction fees in their distributed ledger networks.

If the SEC now decides to brand XRP as "digital asset security", it must do the same for BTC and ETH. Conversely, the SEC must also declare XRP as non-security if it has also done it for BTC and ETH. Anything else would be arbitrary.

The fact that the SEC now wants to make a difference is presumably due to inadequate research, a lack of understanding of the underlying technologies, lobbying by the mining companies and sheer greed for money.

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now


×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.