Thursday, June 20, 2024

The former chief of internet enforcement at the U.S. Securities and Exchange Commission (SEC) has indicated that the judgment in the SEC v. Ripple case is “on uncertain foundations” and is prone to being overturned. He stated that the Ripple verdict provides complete SEC protection to institutional investors. However, retail investors are devoid of any SEC protection, which seems counter-intuitive.

Concerns Raised Over the SEC v Ripple Verdict on Multiple Levels

Former SEC official, John Reed Stark, provided his interpretation of the SEC v. Ripple verdict pertaining to XRP via a LinkedIn post on Friday. Currently heading his cybersecurity firm, John Reed Stark Consulting, Stark founded and led the SEC Office of Internet Enforcement for 11 years and served as an SEC enforcement attorney for an additional 15 years.

He expressed deep concern about the Ripple verdict, stating:

In my honest opinion, the judgment is on uncertain foundations and is likely to be challenged on appeal, possibly leading to an overturn. This should not necessarily be viewed as a reason to celebrate.

In terms of securities offerings, the court divided Ripple’s XRP offering into three specific categories: institutional sales, programmatic sales, and other sales. Each category was given a separate verdict, as Stark elaborated. Ripple Labs’ Chief Legal Officer, Stuart Alderoty, recently dissected the verdict.

The ex-SEC Internet Enforcement head expounded:

In the Ripple verdict, full SEC protection is extended to the institutional investor, along with all remedies accompanying SEC violations, such as rescission, fines, penalties, etc. But the retail investor is not given any SEC protection whatsoever. This seems counter-intuitive.

After a thorough analysis, Stark warned: “I foresee the SEC appealing the Ripple verdict to the 2nd Circuit, which will likely nullify the district court’s rulings regarding ‘programmatic’ and ‘other sales.'”

He anticipates that if the SEC doesn’t emerge victorious post-appeal, there will be “a new crypto-offshoot – PBTs – programmatic buyer tokens, purchasable on your local (unregistered and unregulated) crypto-trading platform.” According to the Ripple verdict, “PBTs will be exempt from securities regulation because programmatic buyers don’t scrutinize anything about the PBTs, are unaware of their PBT sources and have no knowledge of the PBT issuers.”

Stark concluded:

The Ripple verdict implies that an identical token can be considered a security at times and not at others. The less informed and more deliberately ignorant retail investors are, the lesser protection they will receive. Similarly, the lesser the token disclosure, the lesser the liability for the token issuer. This simply can’t be correct.

Last week, attorney Bryan Jacoutot similarly warned that the verdict in the SEC v. Ripple case “is on very shaky ground.” He expects an appeal, believing that the judge misinterpreted the law.

What are your thoughts on John Reed Stark’s analysis? Do you think the judgment concerning XRP and Ripple will be overturned? Please share your opinions in the comments section below.

Frequently Asked Questions (FAQs) about SEC v Ripple Reversal Prediction

Who is John Reed Stark?

John Reed Stark is a former official of the U.S. Securities and Exchange Commission (SEC) who served as the chief of internet enforcement. He is currently the president of his own cybersecurity firm, John Reed Stark Consulting.

What is Stark’s opinion on the SEC v. Ripple ruling?

Stark believes that the ruling in the SEC v. Ripple case is on uncertain foundations and is prone to being overturned. He is particularly concerned that the verdict provides complete SEC protection to institutional investors, while retail investors are left without any SEC protection.

Why does Stark believe the SEC v. Ripple ruling is counter-intuitive?

Stark finds it counter-intuitive because, according to the Ripple verdict, full SEC protection, including rescission, fines, and penalties, is extended to institutional investors. However, retail investors are not granted any SEC protection at all.

What does Stark predict will happen if the SEC doesn’t win after the appeal?

Stark predicts that if the SEC doesn’t win the appeal, there will be a new crypto-offshoot — PBTs (Programmatic Buyer Tokens). These tokens will be available on local, unregistered, and unregulated crypto-trading platforms, and will be exempt from securities regulation.

What’s the perspective of attorney Bryan Jacoutot on the SEC v. Ripple case?

Like Stark, attorney Bryan Jacoutot also believes that the ruling on the SEC v. Ripple case is on very shaky ground and expects an appeal. He believes that the judge may have misinterpreted the law.

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