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Ex-SEC Official Finds Ripple Decision ‘Troublesome on Multiple Fronts’

Former Securities and Exchange Commission (SEC) official John Reed Stark has criticized the recent ruling in the Ripple Labs case, describing it as “troublesome on multiple fronts.” In a LinkedIn analysis, Stark examined the decision made by Judge Analisa Torres on July 13, which favored Ripple in the SEC’s lawsuit alleging that the company’s XRP token was a security.

Judge Torres’ verdict stated that the XRP token was considered a security when sold to institutional investors, but it was not considered a security in ‘programmatic sales’ and ‘other types of sales,’ such as token distribution to employees. Ripple may face penalties for the alleged violation, as well as a rescission for institutional investors who were involved in sales totaling $720 million.

Stark argues that this decision creates a “class of quasi-securities that discriminates” based on the sophistication of the investor. He points out that the same token can be classified as a security sometimes but not others, depending on the type of investor. Stark believes that this contradicts the principles of investor protection, which should not be affected by whether investors read related materials. He states, “Securities laws were specifically designed to protect individual investors, based on the idea that they can’t fend for themselves… The Ripple decision turns this notion on its head.”

Having served as an attorney in the SEC’s Enforcement Division for over 18 years, Stark believes that the decision is likely to be appealed and ultimately overturned. He predicts that the SEC will appeal to the 2nd Circuit, and they will overturn the District Court’s rulings regarding “programmatic” and “other sales.” Stark firmly believes that stock remains stock and cannot transform into “not stock.”

The ruling by Judge Torres was celebrated by the crypto community and Ripple as a victory. Ripple’s CEO, Brad Garlinghouse, expects a prolonged process before the SEC can appeal the decision. He also downplays the significance of the institutional sale decision, stating that an appeal by the SEC against the retail sale ruling would only strengthen Torres’ decision.

Overall, there is a clear divide in opinions regarding the Ripple Labs case. While Judge Torres ruled in favor of Ripple, Stark and others find the decision problematic due to its impact on investor protection principles. The SEC is likely to appeal the ruling, leading to an extended legal process that will determine the final outcome of this high-profile case.

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