The U.S. Securities and Exchange Commission (SEC) has made a significant shift in its stance on the nature of cryptocurrencies, marking a moment of celebration for crypto advocates. In its amended complaint against Binance, the SEC stated it does not consider crypto assets themselves as securities. This revelation was buried in a footnote but quickly picked up by industry leaders, such as Ripple and Coinbase’s Chief Legal Officers.
Coinbase & Ripple CLOs Reflect On SEC’s Latest Remark
Coinbase’s Chief Legal Officer (CLO), Paul Grewal, highlighted this update in a series of posts on X (formerly Twitter). Grewal emphasized the significance of the SEC’s admission, quoting from the amended complaint. He wrote, “‘The SEC regrets any confusion it may have invited’ by falsely and repeatedly stating that tokens themselves are securities.”
Grewal sarcastically deemed the footnote’s language “remarkable,” calling out the agency for reversing a long-held stance on crypto regulation. Moreover, he pointed out the potential impact this shift may have on ongoing litigation involving other crypto companies, most notably Ripple. Grewal tagged Ripple’s CLO, Stuart Alderoty, in his post, stating, “I hope Stuart Alderoty is getting some good sleep tonight. His head’s about to explode when he wakes up and sees this.”
Alderoty did not disappoint with his own reaction. Quoting Grewal’s post, he expressed both vindication and frustration. The Ripple CLO noted that the SEC’s admission is a further sign of its contradictory approach to regulating cryptocurrencies. He said, “So the SEC finally admits that 1/ ‘crypto asset security’ is a made-up term and 2/ to prove a ‘crypto asset security’ is an investment contract, the SEC needs evidence of a bundle of ‘contracts, expectations, and understandings’?”
So the SEC finally admits that 1/ “crypto asset security” is a made up term and 2/ to prove a “crypto asset security” is an investment contract, the SEC needs evidence of a bundle of “contracts, expectations, and understandings”?
Think it’s time for @SECgov to admit it has… https://t.co/iJIYTnNvxs pic.twitter.com/E58Pft7irc
— Stuart Alderoty (@s_alderoty) September 13, 2024
Alderoty also mocked the SEC’s ever-changing stance, calling the agency “a twisted pretzel of contradictions.” He went a step further, humorously offering a logo redesign for the SEC, symbolizing their legal tangles.
The Ripple Case In Spotlight
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The SEC’s admission comes as a relief for many in the crypto industry, especially after years of “regulation by enforcement” campaigns. Grewal drew attention to this issue, saying, “That SEC absolutely ‘maintained’ that tokens themselves are securities is clear from the long record of their regulation by enforcement campaign. Why mislead the Court?”
He specifically pointed out the agency’s inconsistency, referencing its complaint against Ripple, which explicitly claims XRP is a security. The Coinbase CLO wrote, “I mean, SEC claimed XRP itself is security in PARAGRAPH 1 of their complaint against Ripple et al. It’s shameless.”
Grewal added that the SEC’s shift is not just misleading to the public but also an alarming misrepresentation before the court. He remarked, “Gaslighting the American public is bad enough. But the United States government misrepresenting themselves to a Court in this way is something I’ve never seen in 28 years in the law.”
The Binance lawsuit amendment further clarified the SEC’s new position: “The SEC is not referring to the crypto asset itself as the security; rather, as the SEC has consistently maintained…the term is a shorthand.” Moreover, it referenced previous cases like the SEC’s lawsuit against Telegram.
The agency acknowledged that while the term “crypto asset security” has been used as shorthand, the actual security lies in the investment contract associated with the asset. Furthermore, the SEC emphasized that tokens used in initial coin offerings (ICOs) may still be classified as investment contracts. However, it clarified that the SEC is not advancing the argument that tokens remain securities into perpetuity.
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