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Ripple accidentally makes a good point in SEC defense: why isn’t ETH an unregistered security too?


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9 hours ago, HAL1000 said:

ETH is an unregistered security per Howey. Hence Ripple’s contention that the SEC played a role in choosing favourites. By giving a free ride to ETH, but leaving it vague for everyone else, directly leading to a significant amount of investor and developer interest into ETH at the expense of others.

Whether XRP sales are sales of investment contracts is to be proven IMO, because it is based on market conditions 10 years ago, technicalities, domestic vs international sales etc. ETH on the other hand, had a public ICO with the promise of a common enterprise. Most, if not all proof of stake tokens are also at risk of being securities too. 

Edited by Ripley
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"Accidentally?"  I didn't read past the headline, because of the mind-reading and intention-divining --- who is running the J schools, these days?  (Poli-sci majors, in disguise?)  This is how someone who hates you has to grudgingly admit the truth!

Ohwell, at least they're admitting it. :)

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It is a well researched and written article, but I disagree with their conclusion:


For all the discussion that has come as a result of the SEC’s action against Ripple, most miss the real implications: that under the standards set in Howey and by the SEC themselves, there are few digital asset offerings which do not amount to a security. If the SEC are going to punish Ripple, then they should be punishing those responsible for BTC and ETH, as well. It’s an astute point made by Ripple, albeit unintentionally, but it won’t save them. It does highlight that sooner or later, the SEC will have to revisit the BTC and ETH question: applying the same standards they used to take action against Ripple, action against those two projects is long overdue.

The Howey Test said that the oranges were not the securities, the contracts were.  Hinman simply stated that the the "ETH Oranges" sold in the initial ICO were under securities contracts, the "ETH oranges" sold in the more mature decentralised secondary market were not. Hinman was stating the obvious. This was followed by Jay Clayton parading Hinman's unofficial speech on the SEC website and to members of Congress as SEC clarity and "transparency", whilst at the same time Clayton refused to give a transparent answer about whether "XRP oranges" sold in the same way on secondary markets were "securities".  

Obviously Hinman was right, ETH oranges sold on secondary markets in maturing decentralised ecosystems are not common enterprise with expectation of profits dependent on a centralised seller (in the secondary market the resellers are using the utility of the currency and have no connection, knowledge or interest of what the centralised seller is promising in teh future).  XRP oranges sold in secondary markets in the mature XRP ecosystem that has many use cases outside the influence of Ripple are not securities, and Deaton has compiled a long list of such markets.  When forced the SEC lawyers have admitted to the judge that these types of (Deaton) sales on the secondary market are not securities (something to do with clause 5), but afterwards reverted to telling the judge all XRP sales, including those in secondary markets "can" be labelled "securities".

I guess a pedantic view might be that some of the ETH/XRP oranges sold in secondary markets are securities.  Gensler has now weighed in telling us that any tokenised derivative that includes the sale of a real security (bonds?) is itself a security.  So how do we distinguish when a token sold in secondary market is a security and when it is not a security?  Do we call them all securities or all non securities?  Hinman pretty much said all ETH oranges were non securities, and SEC then told the judge all XRP oranges are securities (except they are not always, but we will not give any guidance to the markets on this issue, like we did with ETH oranges)

SEC have muddied the waters whilst regulatory authorities in other countries have started to provide clarity by introducing sand boxes and declaring XRP ODL and other specific tokenised transactions non securities.  SEC, instead of providing guidance and clarity have chosen dubious winners without guidance or explanation.  

...and all this mess is mixed up with obvious corruption inside SEC; IE Hinman's interim faux-pension salary of 1.6 million a year for the time he dropped his job at Simpson Thatcher to work at SEC.

Gensler is beginning to show some leadership, but there is no way he can provide clarity.  Without clarity "fair notice" is, and will remain" a very good defence.  Ripple will now win this case on the fair notice defence, and that is it for the whole industry until after SEC starts to draw clear lines.   SEC will be toothless until after they have drawn clear lines, and that will probably requite new suites of regulatory laws from congress similar to those enacted in Japan, UK and Singapore.  


Edited by Julian_Williams
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Gensler's speech is to my eyes clear evidence that Gensler is ending the case against Ripple.  Gensler is giving some guidance about how to clarify sales in the secondary market, and the obverse of this clarification about "what is a security in the secondary market" is "what is not a security in the secondary market".  I would guess utility coins used as currencies in the secondary market are not securities (IE ODL clearance is not a security).  I read from this speech  that Gensler is admitting the SEC case is flawed by the "Fair Notice" defence and near to settlement

The Ripple SEC case was put through by a 3 to 2 vote on the council under the Jay Clayton.  Clayton was one of the 3.  My guess is that Gensler has sided with Pierce and Roisman (the 2 against taking Ripple to Court).  I believe Gensler ghosted the Pierce Roisman letter that supports Ripple's fair notice claims. This is Gensler's way of over-ruling the decisions of the previous administration without  overtly supporting Deaton's claims that Clayton's administration was very corrupt. 

Gensler is setting it up for SEC to work with Congress and other US financial agencies to provide clarity on when Tokens have to be registered as securities, and thus bring the US into line with what has already been happening in other major financial market outside the US.

I believe Gensler wants the settlement to happen before Hinman is put on the stand and before SEC are forced by the Court to hand over (incriminating?) SEC internal discovery documents.  But this timeline gives Ripple a big stick in the negotiations to give ODL clarity, and Ripple will not settle for anything less.  Under my view Ripple are prolonging the negotiations whilst SEC is in a hurry to settle.

Edited by Julian_Williams
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Problem the SEC have now, is that if/when they finally bungle this case (if they haven't already!) they have essentially shot themselves in the foot going forward – Clayton's stupidity/corruption is now a huge problem for Gensler's future SEC regime.

Any major case they take against large crypto projects/companies will now refer back to the Ripple case. It could get worse, there might be a new precedent set, a new "Ripple Test" to replace Howey – and if that happens, the SEC might struggle even against obviously sketchy or fraudulent cryptocurrencies & tokens. Which is bad for the consumer, as I still believe that in *theory* – if not in practice – the SEC should be there to protect retail from the sharks. 

But the rot has set very, very deep in the SEC and the wider US govt. I personally think there is Chinese & Russian influence written all over this. 

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In my humble opinion, any crypto that did not have an ICO or an ICO like start, should not fall under securities law. Also, any cryptos that do get ruled as securities by the SEC, should technically make it possible for investors in such "companies" to a share of the profits of the companies that issue those cryptos! The SEC can't say we have an investment contract with such companies, then turn a blind eye to irate investors who did not get a share of the profits these contracts supposedly imply we have!


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4 hours ago, RipMcGillicuddy said:

Would not be shocked to hear that.

It's a giant Rabbit Hole of suspicious activities. For example, Tether: 

(Generally not a big Cramer fan, but it's a good intro, worth a watch...)

The idea – if this is Chinese commercial paper based on sketchy Chinese real estate companies – that this would not be done without CCP knowledge (oe even influence), is ridiculous. It's the same as Russia: nothing of significance happens without Putin's say so or knowledge of. 

In short... everyone's banging on about what's "backing" Tether like they're worried it's not USD, but that's NOT the point. The point is, where and whom is this money coming from, and why?! If Tether is backed TWO to one, I don't care – it still needs to be shut down if it's being used as a geopolitical or financial weapon for nefarious activity. 


Edited by thinlyspread
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