Following the publishing of the testimony by the American Securities and Exchange Commission (SEC) chief Gary Gensler, the Cryptoverse is arguing that the regulator could be set out to close the curtain on (nearly) all crypto exchanges, unless they register with them – except possibly those who offer bitcoin (BTC) and ethereum (ETH) exclusively.
Gensler is set to appear before the US Senate Committee on Banking, Housing, and Urban Affairs today, ahead of which his testimony has been made available to the public.
“Frankly, at this time, [crypto is] more like the Wild West or the old world of “buyer beware” that existed before the securities laws were enacted,” Gensler remarked. “This asset class is rife with fraud, scams, and abuse in certain applications.”
To protect investors in the crypto market, there are “a number of projects” that the SEC is eyeing, including crypto trading and lending platforms, the offer and sale of crypto, custody, investment vehicles providing exposure to cryptoassets/crypto derivatives, and “stable value coins.”
Many platforms have numerous tokens on them, and “the probability is quite remote that, with 50, 100, or 1,000 tokens, any given platform has zero securities, the Chairman said, adding:
“Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption.”
In respect to this, as well as to a broader set of policy frameworks, said Gensler, the SEC is working with the Commodity Futures Trading Commission (CFTC), the Federal Reserve, Department of Treasury, Office of the Comptroller of the Currency, and others.
And the Cryptoverse has so far seen these statements as quite threatening towards the crypto exchanges in the US, with Partner at Hogan & Hogan, Jeremy Hogan, opining that what Gansler’s words mean is that exchanges are selling what the SEC finds are securities, and that they’re coming after these companies without “warning shots or ‘clarification’ first.”
“I don’t think the markets have fully understood the implications of Gensler’s statement,” argued tax and fintech lawyer Arturo Portilla, stating:
“There are only 2 cryptos US exchanges may feel comfortable with: BTC & ETH. Listing ANY other crypto could convey the need for the exchange to register before the SEC.”
A number of other commenters also took Gensler’s statements as meaning that the regulator is coming after altcoins and “shitcoins,” as some stated. Certain commenters are arguing that many altcoins are indeed scams or securities, and that the SEC would be justified in shutting these down.
Counterarguments offered here are that it should be regulation for all or none: altcoins can’t be regulated while BTC and ETH remain outside the SEC’s reach.
Others added that the law itself is the problem, or the lack of clarity to be precise, as registering would not be an issue were there clarity of law. Meanwhile, crypto trader and economist Alex Krüger argued that the technology and regulations need to adapt to each other.
And while some wondered if the markets would really react to a decision by a US regulator, others argued that coins could simply be listed from another country.
That said, there are those who find that many other countries could follow the US’ example.
To all the altcoiners who have ridiculed me for saying @GaryGensler was coming for the exchanges, making them delist all but a tiny handful of coins, see the tweet below. And the other countries of the developed world will act in concert, like with Binance. I told you to sell. https://t.co/iu41bMyvNq— log scale 🇸🇻 (@_log_scale_) September 13, 2021
Another thing that caught the Cryptoverse’s eye is the mentioning of “stable value coin.” This too, some say, may be a way towards heavy crypto exchange regulation, as well as a way to control the narrative.
“Whoever came up with “stable value coin” needs to get a raise, then quit & come buidl in crypto,” tweeted Crypto Law Review. “They’re not only talking abt fiat-pegged “stable”coins — they’re also aiming for the grand prize: commodity-backed crypto with full deniability. Talk abt narrative control.”
And while Gensler did invite platforms and projects to “come in and talk to us,” some commenters are saying that companies have tried and got burned. Specifically, Ripple is mentioned here, as SEC is still in a long and hard battle with the company, having brought charges against Ripple executives, alleging that they had “knowingly” sold XRP as an “unregistered security.”
SEC v. Ripple – Court orders plaintiff to ‘answer Ripple’s interrogatories’
Within 24 hours of the court approving the Securities and Exchange Commission’s request to postpone the discovery deadline to January 2022, Judge Sarah Netburn has responded to two pending motions in the SEC v. Ripple Labs lawsuit.
One of the motions was from defendants Ripple Labs and Chris Larsen to compel the SEC to supplement its responses to eleven of its interrogatories and two of Larsen’s. Meanwhile, the other motion from the SEC sought a protective order to relieve it of the obligation to respond to 29,947 separate requests for admission, as per the filing.
Judge Netburn has now granted and denied both motions in part.
The judge ordered the SEC to answer Ripple’s interrogatories and identify the specific terms of the “investment contract” from XRP sales. The order added,
“Ripple’s interrogatory is relevant (and precise) and will clarify whether the SEC contends that the terms of any contract identified in response to Ripple’s Interrogatory No. 1 created an expectation of profits by the purchaser of XRP.”
“Accordingly, Defendants’ motion regarding Ripple Interrogatory No. 2 is GRANTED, and the SEC must supplement its response to Interrogatory No. 2 to identify any specific contractual terms and not just implicit and explicit promises as previously identified.”
The SEC must also respond to whether it contends that “efforts by Ripple were necessary to effect any increase in the price of XRP.” The court granted most of the defendants’ motions to compel answers on interrogatories, except one.
This was the motion from Chris Larsen on when XRPL is fully functional. Judge Netburn denied it without prejudice for being “too vague,” with the parties ordered to confer clarity terms.
Meanwhile, the SEC’s motion for protective orders was also partially granted and denied. The judge granted protection on Defendants’ 28,849 RFAs, noting that “it is hard to view this stunt as anything more than theater.” The order added,
“The motion for a protective order is GRANTED on burden grounds. Having granted the motion to compel a response to Ripple’s Interrogatory No. 2, the protective order is also GRANTED as cumulative and duplicative of another form of admissible evidence.”
As the SEC and Ripple filed their responses, the timeline for the case may extend due to the postponement of the discovery deadline. This deadline was pushed so that the parties could complete the expert depositions and beef up their preparations.
Court Orders SEC to Answer Ripple’s Interrogatories
Ripple, however, has failed to bury the SEC in paperwork, with the judge granting the agency’s motion for a protection order against “unduly burdensome” requests
Magistrate Judge Sarah Netburn has ordered the U.S. Securities and Exchange Commission to answer some of Ripple’s hotly-contested interrogatories, which are meant to determine whether or not the plaintiff’s contentions can be supported by facts.
The agency will have to specify why the company’s XRP sales are investment contracts:
The SEC’s legal theory is not an excuse to avoid responding to Defendants’ factual inquiry. Nor is it a basis to answer a different question than posed.
In addition, the SEC will have to state whether it believes that Ripple’s efforts were key to boosting the price of XRP.
However, Ripple’s interrogatory about whether or not the XRP Ledger was fully functional prior to the start of the securities offering has been denied for being too vague:
The Court agrees that this interrogatory seeks relevant information. But Defendants’ interrogatory is too vague for the reasons identified by the SEC.
Netburn has also granted the SEC’s motion for a protective order, which allows the regulator not to respond to all of Ripple’s “unreasonably burdensome” interrogatories.
The agency claimed that covering all the 29,947 requests would take 104 days without “breaks or sleep.”
Earlier this week, the court also granted the SEC’s motion to extend the expert discovery deadline to Jan. 14, 2022, despite Ripple’s protestations.
XRP Lawsuit: Court Grants Two Motions for both parties each. Here’s how it’s a win-win for Ripple?
The latest update in the XRP lawsuit explains the need for the formerly granted extension. Judge Netburn partially granted two motions, one for both parties. First, the Defendants’ Motion to Compel the SEC to produce interrogatories responses, regarding SEC’s Howey Test blanket application theory. Second, the Plaintiff’s Motion seeking a protective order under FRCP 26(c)(1), relieving the plaintiff of any obligation to respond to the 29,947 requests for admission (RFAs). Judge Netburn explains that the discovery sought in both motions overlap in certain respects, and therefore these applications are resolved together.
Court grants majority motions from the Interrogatories Dispute
Judge Netburn specified that the parties’ conflict over the application of Howey and its progeny do not render Ripple’s interrogatory improper and therefore has ordered the SEC to answer Ripple’s interrogatory No.2, identifying the specific terms of the “investment contract” from XRP sales, along with Interrogatories 11, i.e., Ripple’s move to compel the SEC to state whether it contends that “efforts by Ripple were necessary to effect any increase in the price of XRP.”
Followed by Interrogatories 1 & 11, the Court also granted Ripple Interrogatory No. 6, i.e., the defendants move to compel the SEC to state whether it contends that “Bitcoin and/or Ether are securities within the meaning of Section 2 of the 1933 Securities Exchange Act.”. Furthermore, Judge Netburn granted most of the Defendants’ motions to compel answers on other interrogatories, except Defendants’ motion regarding Larsen Interrogatory No. 5 on when XRPL was fully functional. The judge denied it without prejudice for being “too vague”.
SEC “irrelevance” argument discarded, while “burdensome” stance gets protection from Court
In the RFAs dispute, where the SEC sought a protective order, Judge Netburn has ordered the SEC to answer most of the RFAs while granting protection from one. Specifically, the Court has discarded SEC’s “irrelevance” argument in the case. The court Orders the SEC to produce responses for the Fourth Set requests, seeking to authenticate documents for admissibility under Rule 36(a)(1)(B) that regards the use of RFAs to establish the authenticity or genuineness of a document.
Furthermore, Judge Netburn denies SEC’s “irrelevant” contention to the Fourth Set of Requests regarding Defendants’ “fair notice” argument. The judge stated that disputes over interpretations of law are not a proper objection to a request for admission. Additionally, the court suggested the responding party either admit or deny the statement presented. The court orders the SEC to make a “reasonable inquiry” to secure such information “as are readily obtainable”, further denying the motion for a protective order to the Fourth Set of requests.
However, the court granted a protective order to the SEC for the Sixth Set of Requests regarding the disputed issue of whether Defendants’ sales of XRP constitute “investment contracts” under Howey, where the Defendants required the SEC to consider over 1,500 contracts and answer 13 preliminary questions. The Judge writes “it is hard to view this stunt as anything more than Theatre” to Defendants’ extensive 28,849 RFAs and granting protection to the plaintiff on burden grounds.