The ongoing legal dispute between the Securities and Exchange Commission (SEC) and Ripple Labs has fueled a fresh debate over the security status of XRP, the cryptocurrency linked to Ripple. This debate has become more heated as a result of this latest development.
The SEC claims that Ripple Labs sold XRP as an unregistered security, violating securities laws. The SEC sued Ripple Labs in December 2020, claiming the business had generated $1.3 billion through the sale of XRP in an unregistered securities issuance. The charges have been refuted by Ripple, which also maintains that XRP is not a security.
The cryptocurrency industry has been closely following the case because the verdict may greatly impact how other cryptocurrencies are categorized. Reports says that both sides have been arguing their cases in court during the court sitting, throughout the duration of the case. A Ripple attorney, John E. Hogan, has just made an argument that is arguing in the case again.
The Howey Test And Role It Played In The Process
In the case, Hogan, who is defending many XRP holders, has argued that the SEC has failed to establish that Ripple and buyers of XRP entered into an implicit or explicit investment contract. Hogan’s argument is based on the straightforward claim that the SEC has not made a case for the existence of an implied or explicit investment contract.
Hogan’s claim is noteworthy because the foundation of the SEC’s case against Ripple is the idea that XRP is a security and, as such, is governed by securities laws. If Hogan’s argument succeeds, it may weaken the SEC’s case against Ripple and even establish a standard for categorizing other cryptocurrencies.
The Howey Test, a legal standard used to establish whether a transaction qualifies as an investment contract, forms the foundation of Hogan’s argument. In the SEC v. W.J. Howey Co. Case, the Supreme Court established the standard in 1946. The Howey Test states that a transaction qualifies as an investment contract if it satisfies the financial investment.
Here, the investment is expected to generate a profit, and if the investment is made in a shared business, any earnings are the result of outside work. According to Hogan, the SEC has not demonstrated that XRP satisfies the third and fourth requirements of the Howey Test. Hogan claims explicitly that there was no joint venture between Ripple and XRP buyers and that Ripple was not responsible for any XRP earnings.
How Howey Argued The XRP Security Status Before The Court
A source familiar with the case has said that the Howey Test didn’t focus its argument on the “contract” section of the “Investment contract” feature of the XRP. The contact section of the XRP was considered the most relevant part of the system.
This feature was said to have existed as a result of the decision by the lower court, which addressed the “contract” section of the test even before the attorney rendered his opinion. This situation has been accused of being legally complex to handle. According to Hogan, the Security and Exchange Commission (SEC) has long validated the contract between XRP and Ripple buyers as regards the “investment.”
Meanwhile, analysts have said that Hogan’s court argument is focused on SEC’s unwillingness to argue about the explicit/implicit investment. It was also stated that he (Hogan) had directed his argument on areas that exclude the “investment” feature from the “contract” feature. The SEC, on their part, had argued that the buyer’s agreement is what the users need as proof.
They also said that a purchase without an extra cannot be considered an “investment contract.” According to expert analysis, the whole system is still seen as an investment, just as it applies to buying precious metals like gold and its equivalent. They further explained that in this case, Ripple is no more obligated to participate in the transaction process except for just transferring the assets.
