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Former SEC Official Criticizes Ripple Ruling as ‘Troublesome on Multiple Fronts’

Ripple also faces penalties and potential rescission for institutional investors, involving sales of approximately $720 million.

In a LinkedIn analysis, former Securities and Exchange Commission (SEC) official John Reed Stark criticized the recent ruling on Ripple Lab’s case, describing it as “troublesome on multiple fronts.”

Stark dissected Judge Analisa Torres’ decision from July 13, which favored Ripple in a lawsuit brought by the SEC in 2020. The SEC alleged that Ripple’s XRP token, valued at $0.74, was a security.

Judge Torres concluded that the XRP token was a security when sold to institutional investors but not in “programmatic sales” and other types of sales, such as token distribution to employees.

Ripple also faces penalties and potential rescission for institutional investors, involving sales of approximately $720 million.

According to the ruling, institutional investors had a reasonable expectation that Ripple would utilize the capital from sales to enhance the XRP ecosystem and increase the token’s price.

READ MORE: Eeon Intervenes in SEC Lawsuit Against Binance, Seeks Representation for Customers

In contrast, investors purchasing XRP tokens through exchanges could not reasonably expect the same outcome.

Stark raised concerns about the decision, claiming it established a discriminatory “class of quasi-securities” based on the investor’s sophistication.

He expressed disbelief that the same token could be considered a security in some instances but not in others, and that retail investors with less knowledge would receive less protection.

Stark highlighted the contradiction between the decision and investor protection principles, arguing that investors’ level of protection should not depend on their familiarity with the materials related to the asset purchase.

He noted that securities laws were designed to safeguard individual investors who may not have the ability to fend for themselves, but the Ripple decision appeared to contradict this principle.

Given his extensive experience as an attorney in the SEC’s Enforcement Division, Stark believed the decision was on shaky ground and likely to be appealed and overturned.

He predicted that the SEC would appeal to the 2nd Circuit, and the District Court’s rulings on “programmatic” and “other sales” would be overturned.

While Judge Torres’ ruling was viewed as a victory by the crypto community and Ripple, CEO Brad Garlinghouse anticipated a prolonged process before the SEC could appeal.

Garlinghouse also regarded the institutional sale decision as the least significant aspect of the lawsuit, suggesting that an appeal against the retail sale ruling would only strengthen Torres’ decision.

Overall, the Ripple case has sparked controversy and raised important questions about the classification of cryptocurrencies and the extent of investor protection under securities laws.

The final outcome remains uncertain as the legal battle continues.

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No information published in Crypto Intelligence News constitutes financial advice; crypto investments are high-risk and speculative in nature.