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Ripple pitches new role for XRP holders as SEC refuses clarity for secondary market

  • 4 min read
  • XRP
  • Ripple’s lawyers are pitching John E. Deaton and XRP holders a new way to be involved in the lawsuit against the SEC if the intervention is rejected.
  • The SEC’s response letter regarding the pre-motion to intervene fails to indicate that it intends to provide clarity for the secondary XRP market.

After attorney John E. Deaton launched a renewed attempt to intervene on behalf of over 10,000 XRP holders last week, the U.S. Securities and Exchange Commission (SEC) and Ripple responded yesterday. As Deaton stated via Twitter, he had not spoken to Ripple or its lawyers about it.

However, Ripple‘s lawyers “sent a message in their response” to Deaton and all XRP holders, suggesting “that maybe there is a role for us even if it’s not intervention”. Ripple’s lawyers argue that their position depends on the SEC’s response.

To the extent the SEC seeks only to determine that “that the manner in which Defendants marketed and sold XRP determines whether their sales of XRP were an investment contract, and that it will not seek to establish that secondary market XRP transactions violate the Securities Act or the Securities Exchange Act, Intervenors’ need for participation in this matter may be limited.”

Moreover, Ripple points to the SEC’s ambiguity. “Recently, Judge Netburn rightly identified this same ambiguity and asked the SEC whether its position in this case is that “every individual in the world who is selling XRP [is]committing a Section 5 violation”. So with the motion to intervene, the SEC now has a chance to confirm that its lawsuit is not intended to affect the secondary market for XRP in the United States. However, Ripple’s lawyers also state:

If, however, the SEC continues to equivocate and refuses to clearly state its position on these issues, Intervenors’ interest in the outcome of this litigation could be different. […] But Defendants take no position at this time as to whether intervention or some other, more limited, participatory rights – such as “elevated amicus status” – are appropriate

As Deaton explained via Twitter, Ripple cites a couple of cases in the brief in which the court offered “enhanced amicus status” after denying a motion to intervene.

This would permit #XRPHolders to ‘aid the court and offer insights by filing briefs and presenting arguments that respond to the issues presented by the parties.’ If we don’t get to intervene then hopefully the judge will allow us to participate in this manner.

The SEC maintains its ambiguous position

Predictably, the SEC opposes the intervention by Deaton and his now more than 10,500 supporters. The regulator argues that Deaton does not explain what claims he intends to bring against it. Moreover, it says, the SEC is not liable:

But Congress has barred by statute the consolidation or coordination of claims without the SEC’s consent, and sovereign immunity bars Movants’ claims against the SEC. That alone precludes Movants’ proposed intervention. Intervention should be denied for other reasons.

Further, the SEC alleges that Deaton and the intervenors are only seeking a relisting on crypto exchanges to “resume speculative trading” of XRP, which the SEC claims is evidence that Ripple Labs “offered and sold XRP as a speculative investment.”

The SEC’s third argument is that allowing intervention would create an “avalanche” of claims and “almost certainly undue delay, complexity, and confusion.” Among others, the parties to the Zakinov case would also be allowed to intervene.

To that extent, it appears the SEC has no intention of backing down from its ambiguous position and providing clarity for the secondary XRP market.

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