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Jeremy Hogan: Will Ripple's Fair Notice defense survive?


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1 hour ago, Pablo said:

Just to be clear, if Ripple is successful with their fair notice defence, the securities law issues remain alive for future sales unless the court also rules that Ripple's sales were not, and are not, sales of investment contracts. But if that were true, the defence becomes moot. The Fair Notice defence is actually a backstop - it only makes sense where the court has decided that Ripple's sales of XRP were indeed investment contracts.

Thanks for your input, I had not thought of it that way but you’re absolutely right. We need some damn clarity to move forward and yes, governments are typically VERY slow in this process and only make regulations after it’s too late. Seatbelts didn’t use to be a requirement by law and a lot of people died because of it. There were groups of people calling for a mandatory rule that would make car manufacturers have to add seatbelts to their cars but they did not because “nobody would buy a car with a seatbelt on it”. It was only after the deaths kept piling on that this was made law.
 

I fear the same might happen with crypto. Obviously, it doesn’t directly have to do with human lives, that’s not the point, the point is they’ll likely wait until a serious problem is built up and made blatantly obvious and THEN they’ll do something about it. At least that’s how they’ve historically demonstrated to be how they operate. 

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5 hours ago, jetbrzzz said:

In the early days Ripple was distributing XRP for non-cash considerations in order to build liquidity

In the early days Ripple were giving them away to forum members to prime the liquidity, those forum members "paid it forward" do you remember that phrase, that's how I came by my first XRP, then computing for good, then given the xrpl and exchanges, the XRP started to get a value on the market. 

I subsequently paid it forward just like I should, after I had gained through trading on the XRPL.

Thus My investment was ZERO non existent, along with many other early participants, and I was late to the party so I was too late to get the initial free giveaway from ripple direct.

Once that value became significant, giving it away became a problem, unfair practices ruined that.

 

 

 

i

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1 hour ago, Pablo said:

The fair notice defence is just one of the elements that I'm watching with interest even though I have to say that the idea that one can claim as a defence the fact that regulators, who mainly operate on threadbare budgets, never got around to prosecuting you seems rather weak and offends my lawyer's commonsense principles.

If they are talking about past misconduct and are relying on the defence only for that past conduct - sure - that makes sense. But that doesn't really solve our problem does it? And by "our problem" I mean Ripple's problem and that hanging over the whole industry to clarify the rules applying to future sales of tokens such as XRP, ETH, DeFi tokens and others. To solve that, both parties still need to go to the negotiating table and bash out a compromise.

The big problem the SEC has with the lawsuit, IMO, is the public statements from two of its commissioners that ETH, along with BTC is probably not a security. If ETH wasn’t included in those statements, Ripple wouldn’t have been able to put forth a strong Fair Notice Defence. I don’t personally think the 8 years thing matters so much as the ETH problem.

Poor Mr. Gensler has been explicitly avoiding speaking about any cryptocurrency except BTC.

While I’m sure Ms. Rosie meant this statement in a different context, her words are apt. The train has left the station.

I hope to see something like this -

  • Give clear guidelines on what the SEC views as investment contracts / securities. Go beyond “no ICOs”, but actually give specific examples around raising money at any time in history, concentration of consensus, development, and assets.
  • Give all existing projects a safe window - Come register with us within the next 6 months, and all is forgiven. Or a variant of that - register and only pay a 1% penalty or whatever. Future sales must follow a public calendar or something like that. If not, face enforcement and delisting. 
  • All new projects must get a consultation to determine whether registration is necessary, if they want to access US Markets.
  • Exchanges in the US can only list tokens that have gone through the above process. No liquidity pairs to non-registered tokens.
  • F-BAR and FATCA compliance for cross-border crypto assets.
  • Leverage ratios to match traditional markets.

I’m not happy about some of these but I think it’s inevitable.

Also, I wish the SEC and CFTC align on “secondary market sales are not investment contracts”.

I’m not yet sure how DeFi can be regulated in a scalable way but I think they could say “here’s what we want happening and why, you tell us how we can get there” and solicit feedback from the blockchain community.

With Ripple specifically, I think (hope?) there is a chance they will win the Fair Notice Defence because of ETH.

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2 hours ago, Pablo said:

I've mentioned several times that there are lots of parts to this case that could create real headaches for both the SEC and the sector if the parties go to trial and a judgement is issued.

The fair notice defence is just one of the elements that I'm watching with interest even though I have to say that the idea that one can claim as a defence the fact that regulators, who mainly operate on threadbare budgets, never got around to prosecuting you seems rather weak and offends my lawyer's commonsense principles. That's why we have limitation periods. If the parties don't manage to settle, Judge Torres would need to thread a needle between the well established principles of limitation periods while protecting the legitimate need for a Fair Notice type of defence. Only the lawyers would enjoy that spectacle. And it will be so convoluted and loaded with caveats no one else could make use of such a judgement.

What happens if Ripple is successful in the defence? Do they get immunity for future conduct that would otherwise offend the Securities Act? Can they continue to behave as they did previously even though the courts have told them such sales offend the Securities Act today? Of course not.

If they are talking about past misconduct and are relying on the defence only for that past conduct - sure - that makes sense. But that doesn't really solve our problem does it? And by "our problem" I mean Ripple's problem and that hanging over the whole industry to clarify the rules applying to future sales of tokens such as XRP, ETH, DeFi tokens and others. To solve that, both parties still need to go to the negotiating table and bash out a compromise.

Just to be clear, if Ripple is successful with their fair notice defence, the securities law issues remain alive for future sales unless the court also rules that Ripple's sales were not, and are not, sales of investment contracts. But if that were true, the defence becomes moot. The Fair Notice defence is actually a backstop - it only makes sense where the court has decided that Ripple's sales of XRP were indeed investment contracts.

Maybe this opens a path for a "Ripple Rule" to be created. I still haven't seen a formulation of this rule in any of Ripple's submissions. The idea that you approach courts to make a new rules isn't something done lightly. It takes the legal system years (and many appeals) to develop new rules or principles. With the speed of regulations worldwide, the Ripple Rule could be in danger of becoming a footnote rather than a headline. Maybe the rule will come out of the settlement negotiations. That's a possibility too.

I think it opens the path for Gensler to stand up and take control of the situation, and put forward some sort of coherent way forward for the industry SEC have failed to regulate to date. 

Fair notice is a fair defence given the open declarations by SEC executive (all be it in the pay indirectly of Eth and Btc) that ETH was not a security.  It is a sword of Damocles' forged by SEC themselves, I am hardly sorry for them that it is now waved over their heads.  

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  • 2 weeks later...

This latest video broken down by Jeremy Hogan makes Ripple's fair defense look very promising!!!
They touch upon William Hinman saying on live television that when "WE look at BTC and ETH and the highly decentralized nature of the networks we don't see a third party promoter where applying the disclosure regime would make sense" etc etc. Point is Hinman stated that when he was on live television giving that speech, he was expressing his own personal thoughts, and yet when you listen to the speach, he is saying WE, not me. Just watch the video, it's great.

 

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