Analyzing the situation in 2017
U.S. Representative Richie Torres sent a letter to the chairman of the U.S. Securities and Exchange Commission (SEC) on the 18th after receiving a court ruling over the securities of the crypto asset (virtual currency) XRP.
Torres serves on the House Financial Services Committee, which is charged with overseeing the SEC. In response to the district court’s decision that “XRP itself as a digital token is not a security,” the SEC has issued an opinion to the effect that it should review “regulatory attacks on virtual currencies.”
Crypto regulation by enforcement had a dreadful day in court.
In light of the SDNY’s landmark decision in the Ripple case, @SECGov must reassess its reckless regulatory assault on the crypto industry.
My letter to Chair Gensler: pic.twitter.com/Mrk63N4KhH
— Rep. Ritchie Torres (@RepRitchie) July 18, 2023
Torres summarized the court’s ruling as follows:
The judge has dismissed the SEC’s over-the-top approach to treating all cryptocurrencies other than Bitcoin (BTC) as securities. Judges have also applied the Howie test more strictly than the SEC, stressing the need to prove the existence of an “investment contract.”
As Torres noted, the judge found that only the sale of XRP to institutional investors was an unregistered security transaction, but did not consider others, such as secondary sales to individual investors, to be securities transactions.
The virtual currency itself is not a security, but may be sold as part of an investment contract. In determining whether it constitutes an investment contract, the sales to individual investors do not meet the requirements of the Howie test’s “expectation of profit from the efforts of other companies.”
connection: “The virtual currency XRP itself is not a security” US district court rules
What is Howie Test
A test that determines whether a particular transaction falls under one of the securities trading definitions of an “investment contract” in the United States. Derived from the SEC’s lawsuit against WJ Howey. Although this itself is not legally binding, the SEC has taken legal action against multiple ICOs (token sales) based on this test.
“SEC should focus on cracking down on truly serious violations.”
Torres also argued that the district court’s ruling could adversely affect the SEC, such as in Coinbase v. SEC. He also noted that the judge had pointed out that the SEC had failed to give the crypto industry fair regulatory notice.
Torres went on to say that under Chairman Gary Gensler, the SEC has not enacted rules or clear guidance on cryptocurrencies, and has continued to send confusing messages to the industry that contradict views of the Commodity Futures Trading Commission (CFTC) and others.
It also said that the SEC’s enforcement actions against cryptocurrency companies were being arbitrarily taken. Torres concluded the letter by saying:
Hopefully, the SEC will admonish itself with this court decision and will now focus its energies on taking legal action against those who commit truly serious offenses such as fraud, market manipulation, and embezzlement of client funds.
Remarks by Chairman Gensler
Gensler, meanwhile, said Wednesday that he was “disappointed” that the district court did not consider the sale of XRP to individual investors to be a securities transaction. He also said the SEC is evaluating those judges’ ideas.
Further, the ruling said it was still “premature” to determine whether the SEC would draft more crypto-specific rules.