News - Could this text excerpt decide the Ripple lawsuit?

By Mike Hesp

Could this text excerpt decide the Ripple lawsuit?

The lawsuit between the U.S. Securities and Exchange Commission (SEC) and Ripple is considered authoritative for the crypto sector. A previously unnoticed memo could play into Ripple's hands.

It is nothing short of the most important lawsuit in the crypto world. Ripple, the company behind the cryptocurrency XRP, and the U.S. Securities and Exchange Commission (SEC) fighting in court on the categorization of the token. Ripple is getting support from attorney John Deaton. He now has a passage in a document discovered that he believes will have a decisive impact on the outcome of the lawsuit. However, the facts surrounding the mysterious memo from an alleged SEC employee are opaque.

XRP: effect, or not?

The SEC sued Ripple in December 2020, accusing the company of illegally selling its own token XRP for years as an unregistered security and that it is still a security today. The court must now clarify whether this accusation is justified and XRP is indeed a security. Since day one, the crypto world has been following the case with much excitement. Because it is believed that the court case will be used as a precedent for future crypto regulations.

Memo can help Ripple

Ripple defends itself by arguing that the SEC has failed to establish a metric that clearly defines how cryptocurrencies are classified. Any information indicating that the SEC may have considered not classifying XRP as a security could help Ripple. Crypto lawyer Deaton now claims to have made a crucial discovery.

Deaton spoke out on Twitter on May 21, stating that a brief memo in a Ripple legal document he had only recently noticed confirmed that XRP was indeed discussed "between SEC staff prior to the Hinman speech."

The relevant passage reads, "There are reasonable grounds to conclude that XRP does not meet all elements of the Howey analysis and therefore is not a 'security' within the meaning of the federal securities laws." The Howey test is used to evaluate an asset as a security. However, the Howey test is considered controversial, especially in connection with cryptocurrencies. The question is whether the test, which is more than 50 years old, applies to modern assets.

The Hinman documents

The Hinman speech is a June 2018 presentation in which the ex-director of the SEC's Division of Financial Services stated that Ether, the Ethereum blockchain's native token, is not a security. Just one more few days ago a district court ruled that the SEC could not keep the related "Hinman documents" under seal. The documents contained records of internal SEC deliberations related to the speech. The judge in charge, Analisa Torres, rejected the SEC's request to keep the documents secret.

Authorship unclear

In a Twitter-space of May 22 hosted by Fox Business journalist Eleanor Terrett, Deaton stated that the passage "clearly states" that XRP was discussed at the agency because "someone at the SEC quoted this person saying it's not security, or they forwarded the email within the email chain." Indeed, the authorship of the memo is unclear. Deaton is now trying to narrow down the possibilities through the way the quote is referenced.

The fact that the text passages are not blacked out is an indication that the text "is not a direct quote from a senior SEC official." Another tweet then says, relativizing, "Maybe it's not a direct quote from an SEC official, but it's an SEC official referring to someone else's analysis of XRP in the emails with Hinman." Ultimately, however, these attempts remain nothing more than speculation. More insight into the matter could come on June 13. Hinman's documents are expected to be released on that day.

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