XRP Lawsuit Sees New Twists And Turns As Ripple’s Counsel Exposes SEC’s Slippery Slope in Crypto Regulation

Just ahead of an expected ruling in the ongoing court case between the SEC and Ripple, Stuart Alderoty, Chief Legal Officer at Ripple, said: “The Revak case exposes yet another SEC sleight of hand. Without a [common enterprise], it matters not whether [the fortunes of investors] are tied to the efforts of others. The Howey test is not [so easily satisfied].”

By broadly interpreting “common enterprise,” the SEC’s approach to regulating cryptocurrencies enables the agency to avoid tying the term to specific transactions and instead concentrate on the adjective “common.” The legal counsel for Ripple has recognized this and is contending that all that is required is a common interest in opposing the SEC’s attempt to extend the Howey test.

Australian Crypto Law commentator Bill Morgan added his views. “To put this and Stuart’s tweet in context, the starting point is to recognize that the SEC is trying to massively stretch the Howey test to cover crypto on the grounds the Court intended to be flexible.” He said in a tweet.

The SEC has cited evidence showing that Ripple boasted about the alignment of its interests with those who have XRP, but Ripple’s attorneys have refuted this claim by arguing that this is just a common interest using the example of gold. Nevertheless, other cryptocurrencies may be affected by the SEC’s attempt to reduce common enterprise to common interest.

The use of the Howey test by the SEC has been a source of controversy in the crypto industry, as the agency has attempted to apply the test to cryptocurrencies and initial coin offerings (ICOs). As a result, many in the industry have argued that the test does not apply to crypto and that the SEC has been overreaching in its attempts to regulate the space.

The decision in Revak raises the bar for the SEC to establish the existence of a common enterprise, which is considered a victory for those who disagree with the agency’s expansive interpretation of the Howey test. However, it also emphasizes the necessity of a more sophisticated strategy for regulating the cryptocurrency market, one that takes into consideration the unique features of cryptocurrencies and ICOs.

The SEC vs Ripple case is ongoing, and a ruling from district judge Analisa Torress is expected anytime now.

The SEC alleges that Ripple raised $1.3 billion by selling XRP as an unregistered security. Ripple denies the allegations and argues that XRP is not a security. The case outcome could significantly impact the cryptocurrency industry, as it could clarify the regulatory status of cryptocurrencies.

At the time of writing, XRP was traded at $0.42, up 0.45% in the past 24 hours, according to data from CoinMarketCap.