Will the SEC bring Ripple (XRP) to its knees?
Brad Garlinghouse is pursuing sales of Ripple (XRP), which he says is at the heart of the company's economy as investors believe XRP is a security token and must comply with the U.S. Securities and Exchange Commission's (SEC) standards for this asset class. The case has been before the SEC for several months, but so far the SEC has not expressed its opinion on the matter. In the meantime, XRP continues to function as a utility token and the SEC's silence on the matter is beginning to bother investors.
They are demanding that SEC guidance be applied to the sale of XRPs.
The legal action brought by certain Ripple investors against the company is based on a number of factors, including the nature of the XRP tokens and the legal standards allegedly governing their sale.
The renegade investors relied on the SEC's legal framework defining cryptographic tokens to prove that XRP is a security token - a tokenized financial asset - rather than a mere utility token.
They take exception to the fact that "XRP has been circulating in the crypto markets since 2013", and that although the SEC published a guide to recognizing security token offerings (STOs) last year, it has not yet issued its verdict to date.
What is interesting is that if this token is considered a security token, Ripple's responsibilities to XRP holders would be much more stringent than they are currently and the company would have less leeway in the cryptographic markets.
In view of this, one might be tempted to wonder whether the SEC would be protecting Ripple.
Ripple Labs continues to sell XRPs freely in the deafening silence of the SEC
In principle, the SEC must have required Ripple to comply with the legal framework applicable to the sale of security tokens for a long time.
It is worth recalling that Ripple's CEO, Brad Garlinghouse, had recently stated that Ripple derives most of its revenue from its sales of XRP in the market. In other words, if the SEC were to impose restrictions on Ripple in this area, the company would face real difficulties.
Brad had also proposed an IPO for Ripple fully supervised by the SEC. In his view, the company could exploit this platform to obtain financing in the capital markets and could finally stop relying on XRP sales to finance itself.
In the meantime, therefore, XRP and Ripple will continue to operate as they have always done. The SEC has, of course, never spoken publicly on this matter.
This laissez-faire attitude is akin to de facto authorization. There's every indication that we're in a game. And no one knows if the SEC will actually force Ripple's hand.