Former SEC executive John Stark argues that the July 13 victory for Ripple is problematic in many ways. According to Stark, the lawsuit that was settled in favor of Ripple could be appealed and overturned.
John Reed Stark says Ripple victory is not absolute
John Reed Stark, the SEC’s former chief of internet enforcement, stated in a LinkedIn post on July 14 that the Ripple lawsuit decision is “ripe for appeal” and will likely be overturned. An appeal is a remedy for re-examination of provisions in response to a court decision.
On July 13, Judge Torres made a summary judgment in favor of Ripple Labs in the SEC case. However, the same decision also concluded that XRP violated federal securities laws. Stark writes that the court decision was “on shaky ground.”
Ripple court decision ‘disturbing on multiple fronts’
According to Stark, the court ruling in the Ripple case is “disturbing on multiple fronts.” The former SEC executive wrote that the decision “seems to go against the SEC’s mission to protect investors.” On July 13, the court ruled that XRP was sold to institutional investors as collateral. Therefore, the Ripple decision provides institutional investors with the protections offered by the SEC. But the ruling does not protect individual investors, according to Stark, as the court ruled that XRP is not a security when sold on crypto exchanges.
Therefore, the Ripple decision creates a “quasi-securities class” that “discriminates and transforms” depending on how sophisticated the investors are. Stark wrote that this discrimination was “unintuitive, inconsistent with the SEC’s perspective, and unprecedented in this context.”
Additionally, the court ruling clarified that tokens sold through exchanges are not securities because customers of the exchange are “assumed to know nothing about the crypto issuer.” Stark has this to say about it:
But simply an investor’s ignorance or unwillingness to research has never served as a valid defense against a security breach.
Resolution assumes individual investors are ‘stupid’
Stark also said the decision was “not just condescending. It’s also downright insulting,” he said, as he assumes that “individual investors are typically stupid.” The former SEC executive believes individual investors are not as ignorant as the court ruling assumes. Individual investors bought XRP because they believed the XRP price would rise because of Ripple, even though they didn’t know they were providing capital to the firm.
However, he suggested that if individuals are truly ignorant, then XRP cannot be a security. “The question is whether investors can expect profits from the efforts of a known or unknown third party,” he added.
Stark also questions:
How can tokens that are securities when sold to institutional investors then somehow miraculously transform into “not securities” when those institutional investors or the issuer themselves sell the tokens on Coinbase or Binance?
“Ripple victory likely to be spoiled”
The July 13 court order is a partial summary judgment of a single district court judge. According to Stark, the decision is “important” and “worthy of review.” However, it “does not set a binding precedent for other courts.” Stark adds that the Ripple decision will likely be appealed. He also wrote that “given the unprecedented nature of the decision” the court would likely approve an urgent, interim appeal, and the Second Circuit would likely hear the appeal.
That said, one crypto lawyer, Kayvan Sadeghi, said that Stark’s argument “miss or ignores” an important point. Sadeghi says the court decision does not recognize XRP as a security. This is why he states that the definition of XRP has never changed. Paul Grewal, Coinbase’s chief legal officer, makes another point. Accordingly, the decision said, “As a digital token, XRP is not a ‘contract, transaction’ per se.
cryptocoin.com As we quoted, JPMorgan analysts suggest that the Ripple decision is positive in many ways.
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