Ripple has filed an official response to the U.S. Securities and Exchange Commission’s (SEC) lawsuit against the company.
The SEC says Ripple sold unregistered securities in the form of XRP for years. Ripple counters that XRP can’t be regulated because of its use case as a means of transferring value.
“The Complaint filed by the SEC advances an unprecedented and ill-conceived legal theory – with neither statutory mandate nor congressional authorization – that Ripple’s distributions of the virtual currency XRP constitute ‘investment contract[s]’ and thus ‘securit[ies]’ subject to registration under Section 5 of the Securities Act of 1933. 15 U.S.C. § 77b(a)(1). That theory ignores, among many other things, that XRP performs a number of functions that are distinct from the functions of ‘securities’ as the law has understood that term for decades.
For example, XRP functions as a medium of exchange — a virtual currency used today in international and domestic transactions — moving value between jurisdictions and facilitating transactions. It is not a security and the SEC has no authority to regulate it as one.
Before this case, no securities regulator in the world has claimed that transactions in XRP must be registered as securities, and for good reason. The functionality and liquidity of XRP are wholly incompatible with securities regulation. To require XRP’s registration as a security is to impair its main utility.”
Ripple also highlights its 2015 settlement with the U.S. Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN), which labeled XRP as a virtual currency and allowed the company to continue selling the digital asset.
Ripple also cites XRP’s status as a virtual currency in jurisdictions outside of the US as a reason the asset should be exempt from securities laws.
“Securities regulators in the United Kingdom, Japan, and Singapore have likewise concluded that XRP is a virtual currency not subject to securities regulation. As the U.K. Treasury recently explained, ‘widely known crypto assets such as Bitcoin, Ether and XRP’ are not securities, but ‘[e]xchange tokens’ that ‘are primarily used as a means of exchange.’”
Ripple says the lawsuit has the potential to damage U.S. competitiveness and innovation in the financial sector, claiming that the SEC has “already caused more than an estimated $15 billion in damage to those it purports to protect.”
The company believes the SEC’s actions amount to picking winners and losers in the crypto industry.
“The SEC’s filing, based on an overreaching legal theory, amounts to picking virtual currency winners and losers as the SEC has exempted Bitcoin and Ether from similar regulation. It asks the Court to contradict the findings of the agency’s peers in the United States and internationally and subject what has been a global virtual currency to conflicting regulatory regimes on a nation-by-nation basis.”