In addition, Ripple might be fined and have $720 million in sales cancelled by institutional investors.
In an analysis published on LinkedIn, former SEC official and Ripple Lab critic John Reed Stark called the decision “troublesome on multiple fronts.”
Stark broke down Judge Analisa Torres’ July 13 ruling in favour of Ripple in the SEC’s 2020 case. The SEC claimed that the XRP coin issued by Ripple and now trading at $0.74 constituted security.
When sold to institutional investors, Judge Torres ruled that the XRP token constituted security; nevertheless, when sold via “programmatic sales” and other sorts of sales, such as token distribution to staff, the judge reached a different conclusion.
In addition, Ripple might be fined and have $720 million in sales cancelled by institutional investors. The court found that large financial institutions might have reasonably expected Ripple to use the funds from token sales towards the development of the XRP ecosystem and the inflation of the token’s value.
Stark voiced opposition to the ruling, arguing that it created a “class of quasi-securities” that unfairly categorised investors based on their level of expertise.
He couldn’t believe that the same token could be regarded as security in some cases and not in others, or that less-informed retail investors would be given less protection.
Stark argued that investors’ degree of protection should not rely on their familiarity with the papers relevant to the asset transaction, highlighting the discrepancy between the ruling with investor protection principles.
He pointed out that the Ripple ruling seemed to go against the idea that securities rules were established to protect vulnerable investors.
Stark, a seasoned attorney in the SEC’s Enforcement Division, was of the opinion that the ruling was unsound and would likely be reversed on appeal.
He foresaw the SEC filing an appeal with the 2nd Circuit and the District Court’s decisions on “programmatic” and “other sales” being reversed.
The crypto world and Ripple celebrated Judge Torres’ verdict, but CEO Brad Garlinghouse knew an appeal from the SEC would take time.
According to Garlinghouse, an appeal of the retail sale verdict would simply bolster Torres’ decision, while the institutional sale ruling was the least important part of the litigation.
As a whole, the Ripple issue has stirred up debate and prompted serious inquiries into how digital currencies should be categorised and how far investors are protected by securities rules.
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