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SEC v. Ripple Labs, et. al: An Analysis


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Great analogy ... David Schwartz's shorts... 
ROTFL

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If David Schwartz were to sell his used gym shorts and guarantee that he would never use or wear a pair of gym shorts again, you could argue that David Schwartz is selling a security. David Schwartz's actions and ascension to greatness are the only things that will ever make those gym shorts worth anything, and his promise to not sell anymore is him controlling the market and creating a favorable supply v. demand ratio. Whoever bought that pair of shorts could reasonably expect profit based on David's actions.

 

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8 hours ago, JASCoder said:

Great analogy ... David Schwartz's shorts... 
ROTFL

 

Didn't know he was the only one being able to create shorts and sell them and have a finite amount of them and tell that his shorts could go up in worth 100x and gets speculation by so many retail investors on his shorts worth.

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I like the analogy of the beanie babies which is sort of flushed out below. 

Company X creates 100,000 beanie babies and claims it will create no more.  It sells 10,000 beanie babies into the market for $100 each, and keeps the remaining 90,000.  Company X has no other business or means of generating income for the company.  Company X promotes the benefits of beanie babies, touting their utility as providing kids with unending happiness.  Kids love them and demand goes crazy.  Company X states that beanie babies could make for an excellent investment, which could go up in value given their limited number and utility.  Beanie babies are now trading on exchanges where they can be bought (and sold) for $1000 each.  Company X sells another 10,000 into the market at $1000 each, and pays some of its managerial employees in beanie babies, who also sell some.  The kids want them now more than anything, and people are buying them with the expectation that they will go up in value, and Company X keeps touting the benefits and loveable nature of these creatures.  Beanie babies keep trading on exchanges, and Company X keeps selling beanie babies into the market, the proceeds of which are used to pay for Company X's operation.  The vast majority of the beanie baby purchases are being made for investment purposes, and the investors rely on Company X to promote beanie babies.  Company X sells shares of its company to others following all securities laws, but it did not register the sales of beanie babies with the SEC.   

Is a beanie baby a security?  Did the sales of beanie babies by Company X violate securities laws because Company X did not register the sales with the SEC and otherwise comply with securities laws? 

If one were to follow the Howey test, I guess one could argue that they are.  But such a conclusion seems outrageous on its face.

The analogy is probably missing some components, but it seems that the Howey test is far too broad, and that there can be times where a thing (like xrp or eth) has utility and at the same time is an opportunity to invest/speculate.   

We need legislation or clear guidance from regulators regarding how cryptocurrencies are to be treated; instead, all we get are new SEC enforcement actions.  Unfortunately, the SEC really doesn't care about investors; its goal is simply to generate fines which exceed its budget so Clayton can say what a wonderful job he has done.   

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13 minutes ago, Alluvial said:

I like the analogy of the beanie babies which is sort of flushed out below. 

I don't know if this is a good analogy actually. A beanie baby is basically a toy. Yes people speculate on the price going up but it's still a toy/collectible. XRP is something else. Not saying the SEC is correct but to me that analogy is flawed.

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1 hour ago, SquaryBone said:

I don't know if this is a good analogy actually. A beanie baby is basically a toy. Yes people speculate on the price going up but it's still a toy/collectible. XRP is something else. Not saying the SEC is correct but to me that analogy is flawed.

Analogies are never great, and this one probably is flawed - just sort of wrote it and sent it.  And yes, of course it's a toy, but why exactly does the sale of the beanie babies by the company under these circumstances not pass the Howey test? 

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2 hours ago, Alluvial said:

Analogies are never great, and this one probably is flawed - just sort of wrote it and sent it.  And yes, of course it's a toy, but why exactly does the sale of the beanie babies by the company under these circumstances not pass the Howey test? 

Because the company sells a toy. Not an investment in any way. Not even a speculative investment, a TOY.

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27 minutes ago, SquaryBone said:

Because the company sells a toy. Not an investment in any way. Not even a speculative investment, a TOY.

The SEC, in its complaint against Ripple, stated that:

"Courts have found that novel or unique investment vehicles constitute investment contracts, including interests in orange groves, animal breeding programs, railroads, mobile phones."  

So the fact that it's a toy doesn't mean that it cannot be deemed as part of an investment contract.  

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9 hours ago, Alluvial said:

I like the analogy of the beanie babies which is sort of flushed out below. 

Company X creates 100,000 beanie babies and claims it will create no more.  It sells 10,000 beanie babies into the market for $100 each, and keeps the remaining 90,000.  Company X has no other business or means of generating income for the company.  Company X promotes the benefits of beanie babies, touting their utility as providing kids with unending happiness.  Kids love them and demand goes crazy.  Company X states that beanie babies could make for an excellent investment, which could go up in value given their limited number and utility.  Beanie babies are now trading on exchanges where they can be bought (and sold) for $1000 each.  Company X sells another 10,000 into the market at $1000 each, and pays some of its managerial employees in beanie babies, who also sell some.  The kids want them now more than anything, and people are buying them with the expectation that they will go up in value, and Company X keeps touting the benefits and loveable nature of these creatures.  Beanie babies keep trading on exchanges, and Company X keeps selling beanie babies into the market, the proceeds of which are used to pay for Company X's operation.  The vast majority of the beanie baby purchases are being made for investment purposes, and the investors rely on Company X to promote beanie babies.  Company X sells shares of its company to others following all securities laws, but it did not register the sales of beanie babies with the SEC.   

Is a beanie baby a security?  Did the sales of beanie babies by Company X violate securities laws because Company X did not register the sales with the SEC and otherwise comply with securities laws? 

If one were to follow the Howey test, I guess one could argue that they are.  But such a conclusion seems outrageous on its face.

The analogy is probably missing some components, but it seems that the Howey test is far too broad, and that there can be times where a thing (like xrp or eth) has utility and at the same time is an opportunity to invest/speculate.   

We need legislation or clear guidance from regulators regarding how cryptocurrencies are to be treated; instead, all we get are new SEC enforcement actions.  Unfortunately, the SEC really doesn't care about investors; its goal is simply to generate fines which exceed its budget so Clayton can say what a wonderful job he has done.   

just like xrp we can only speculate what is really going on inside closed meetings. the show must go on and we must wait for the season finally.  it wasn't the tai corp. that ruined beanie babies....and they would be worth thousands now...especially princes Diana ones......it was the beanie boss out of Chicago that brought in a container dolls and put tags on them in the us 🇺🇸.....nothing is what it seems.....best of luck to us all

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Xrp is an invention. A utility protocol for value transfer purpose.  
Which means it is a product. Just like iphone.

Apple reinvests the money to broaden the ecosystem and no one sees iphone as the security of apple.

Ripple released digital product (utility tool) that are limited in number in the free market. The price rose as the demand increased.  Xrp does not function as the security of the company, it is just a product in the free market. 

 Therefore xrp should be looked as a commodity, not security or currency.

 

 

Edited by quan
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10 hours ago, Alluvial said:

The SEC, in its complaint against Ripple, stated that:

"Courts have found that novel or unique investment vehicles constitute investment contracts, including interests in orange groves, animal breeding programs, railroads, mobile phones."  

So the fact that it's a toy doesn't mean that it cannot be deemed as part of an investment contract.  

I didn't say it can't be. I'm not telling XRP is or is not a security. The courts will decide. The reason that they filed this case to me is because they see a chance they'll succeed. Or this is just to suppress Ripple. However I'm not in the luny-corner. This is just all too weird. Years have past and they were fully aware of Ripple and XRP and they're here to protect the investor and do this just now and yesterday the OCC comes with important news... some things don't add up.

But that still doesn't mean good news for Ripple/XRP. It could be that Ripple pissed off the wrong people (like with being idiots and telling they think about moving, what a stupid bluff was that :s ).

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