Saturday, May 18, 2024

An attorney has provided insights into the possible consequences if the U.S. Securities and Exchange Commission (SEC) emerges victorious in its lawsuit against Ripple Labs, leading to the classification of XRP as a security. The lawyer anticipates that Ripple would file an appeal in the event of an SEC win, cautioning that it could take several years before any funds are collected.

Legal Expert Assesses Probable Scenario in SEC’s Lawsuit Against Ripple

John E. Deaton, a lawyer, founder of Crypto Law, and managing partner at Deaton Law Firm, has outlined his predictions concerning the implications if the U.S. Securities and Exchange Commission (SEC) were to succeed in its legal action against Ripple Labs, resulting in the designation of XRP as a security.

In December 2020, the SEC filed a lawsuit against Ripple, its CEO Brad Garlinghouse, and co-founder Chris Larsen, alleging that the sale of $1.3 billion worth of XRP tokens constituted the offering of unregistered securities. The case is currently under the jurisdiction of U.S. District Judge Analisa Torres. Ripple has consistently maintained that XRP should not be classified as a security.

Deaton expressed his views on Twitter, stating, “If Ripple loses to the SEC, there won’t be any money collected for years.” He further provided a detailed explanation, asserting that if the SEC were to secure a victory, Ripple would launch an appeal, resulting in the preservation of the existing status quo for the next two to five years.

He added, “Assuming the SEC wins, and the civil case lawyers get a win because the judge in California follows Judge Torres’ ruling, Ripple will appeal that case as well and there will be no money for years, if ever.” Deaton emphasized the following:

If, after five years, Ripple exhausts all avenues of appeal and loses, the SEC would then have the authority to collect the funds, amounting to $1.3 billion, rather than the civil plaintiffs.

In such a scenario, Deaton explained that the securities regulator “would subsequently establish a reimbursement fund, enabling XRP holders to sell their holdings (similar to what occurred in the Veritaseum case).”

Deaton pointed out, “If I were the Plaintiff’s attorney in the civil case, I would want the SEC to lose because the SEC winning will significantly diminish the damages in the civil case. Ironically, if there is a recovery, XRP holders would receive a larger sum from the SEC fund. This is due to civil case lawyers receiving between 25-35% of the recovery as attorney fees, deducted from the fund after the costs of the case.”

Additionally, he suggested, “If the Supreme Court decides to review the case (which I believe they will if Congress hasn’t taken action by then), I firmly believe that Ripple will undoubtedly prevail in the Supreme Court.”

The attorney proceeded to discuss the implications of being included in the list of 75,000 XRP holders that he compiled. “Being part of the 75,000 list is actually beneficial because it makes it easy to identify a substantial putative class of XRP holders,” he explained, elaborating further:

By joining the list I created, individuals have not waived any rights whatsoever.

“In fact, if there were ever any funds allocated to XRP holders, whether from the civil case or the SEC case, it is likely that I would be contacted because XRP holders must be notified of the recovery, and I possess a list of 75,000 XRP holders,” he stated.

Nevertheless, Deaton asserted, “In reality, I doubt the civil case will yield significant outcomes,” emphasizing that “if the SEC ultimately prevails, it will collect the largest sum of money and offer the most favorable option, ironically. Furthermore, if Ripple loses and Congress resolves this regulatory predicament during the five-year appeals process, the matter will be rendered moot.”

In May, Ripple’s CEO disclosed that the legal battle with the SEC has resulted in substantial expenses for the company, totaling $200 million. He previously emphasized that the outcome of the SEC’s lawsuit against Ripple would be “crucial for the entire industry.”

What is your prediction regarding the outcome of the case? Share your thoughts in the comments section below.

Frequently Asked Questions (FAQs) about Ripple lawsuit

Q: What is the current lawsuit between the SEC and Ripple Labs about?

A: The lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Ripple Labs and its executives revolves around the sale of $1.3 billion worth of XRP tokens. The SEC claims that these tokens were unregistered securities, while Ripple maintains that XRP should not be classified as such.

Q: What are the potential outcomes if the SEC wins the lawsuit?

A: If the SEC prevails in the lawsuit and XRP is declared a security, the most likely scenario would involve Ripple filing appeals. This could result in years of legal proceedings, potentially delaying the collection of any funds. Ultimately, if Ripple exhausts all appeals and loses, the SEC would be able to collect the funds, but the civil plaintiffs would not receive them.

Q: How would XRP holders be affected if the SEC wins the case?

A: XRP holders could face implications depending on the outcome. If the SEC wins, it is possible that a reimbursement fund for XRP holders may be established, similar to what occurred in a previous case involving Veritaseum. However, the timing and availability of any potential recovery for XRP holders would be uncertain and subject to the legal proceedings and appeals.

Q: What role does the attorney, John E. Deaton, play in this situation?

A: John E. Deaton is an attorney, founder of Crypto Law, and managing partner at Deaton Law Firm. He has provided insights and opinions regarding the potential outcomes of the SEC lawsuit against Ripple. Deaton has expressed his belief that Ripple would benefit from an SEC loss and has created a list of 75,000 XRP holders, which he believes could be relevant if there is a recovery and the need for notice to XRP holders.

Q: What is the significance of the outcome of this lawsuit for Ripple and the industry?

A: The outcome of the SEC lawsuit against Ripple is pivotal not only for Ripple but also for the broader cryptocurrency industry. It could set a precedent for the regulatory treatment of digital assets, impacting how other cryptocurrencies are classified and regulated. The legal battle has incurred significant costs for Ripple, and the resolution of this case will likely have far-reaching implications for the company and the industry as a whole.

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