Former SEC Official Says Ripple’s Decision Is ‘Troublesome on Multiple Fronts’

Former Securities and Exchange Commission official John Reed Stark spoke out against the recent ruling on the Ripple Lab case, calling The LinkedIn analysis found the decision “troublesome on several fronts”.

Stark broke down Judge Annalisa Torres’ July 13 ruling by examining the grounds on which she ruled in favor of Ripple in a 2020 lawsuit brought by the SEC alleging the company’s XRP The token was a security.

Some thoughts on the SEC/Ripple decision. pic.twitter.com/lcwWML49kO

— John Reed Stark (@JohnReedStark) 14 July 2023

Judge Torres’ ruling stated that the XRP token was a security when sold to institutional investors, but was not a security in ‘programmatic sales’ (public sales) and ‘other types of sales’, such as token distributions to employees. Ripple also faces penalties for alleged violations, as well as disenfranchising institutional investors — whose sales reportedly included $720 million.

In the decision, Judge Torres argues that institutional investors “reasonably expected that Ripple would use the capital received from its sale to improve the XRP ecosystem and thereby increase the price of XRP,” while investors who purchased XRP tokens Used to use the exchanges to buy, they “could” not reasonably expect the same.

To Stark, the decision establishes “a class of quasi-securities that discriminates” based on the sophistication of the investor purchasing the token.

“The Ripple decision recognizes that the same exact token can sometimes be a security but not a security at other times. And the more ignorance and willful blindness by retail investors, the less protection retail investors will receive. And the token The lower the disclosure, the lower the liability for the token issuer. This cannot be true.”

Stark also noted that this argument seems contrary to investor protection principles, which state that an investor’s level of protection should not be affected by whether or not they have read material related to the purchase of an asset. “Securities laws were specifically designed to protect individual investors, based on the idea that they cannot protect themselves (…). Ripple’s decision overturns that notion,” Stark said.

In the view of Stark, who served as an attorney in the SEC’s Enforcement Division for more than 18 years, “the decision is on shaky grounds, likely (and ripe) for appeal, likely to be reversed.”

“Key point: stock is always stock – it cannot be converted to ‘not stock. ‘ will overturn the district court’s decisions related to it,” he said.

Judge Torres’ decision was hailed as a victory by the crypto community and Ripple. The company’s CEO, Brad Garlinghouse, said during a recent interview that the SEC may face a lengthy process before getting a chance to appeal against the decision. Furthermore, Garlinghouse called the institutional sale decision “the tiniest piece” of the lawsuit, adding that the SEC’s appeal of the retail sale decision would only strengthen Torres’ decision.

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