Democrat judge overseeing Ripple lawsuit might dismiss charges
The Obama appointee may take a softer stance towards Democrat-connected Ripple Labs. Bill Clinton famously appeared at a conference held by Ripple in 2018.
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The judge overseeing the S.E.C. vs. Ripple lawsuit in the Southern District of New York, Analisa Torres, was appointed by Obama in 2013 and is a Democrat. Ripple executives have claimed that Democrats are more friendly towards their company than Republicans.
Former Chairman of the S.E.C. Jay Clayton is a Republican and a Trump appointee. Garlinghouse said that Clayton allowing this lawsuit to go forward the day before he resigned from his position at the S.E.C. was “shameful.” suggesting this lawsuit may have been politically motivated.
In Ripple’s response to the S.E.C., CEO Brad Garlinghouse said that the US should be supporting Ripple Labs because they are an American company, and that Bitcoin and Ethereum are heavily mined in China where electricity prices are exceptionally cheap. This was likely an appeal to Republicans who are strongly anti-China.
Garlinghouse also stated that the incoming Biden administration might be more friendly towards Ripple. President Trump continues to claim that he has won the election, and supporters say there are still several ways the election can be overturned before January 20th.
Ripple Labs is based in San Francisco, a heavily Democrat city in one of the bluest states in the country. Like most Silicon Valley tech companies they are well connected to the Democratic party, even managing to get former President Bill Clinton to speak at their “Swell” conference in 2018.
At Swell, Clinton stated that “you can’t apply [an] old regulatory regime to a new technology.” He added that “You end up killing the goose that laid the golden egg.” He also claimed that “The permutations and possibilities are staggeringly great. But we could ruin it all by negative identity politics and economic and social policy.”
Clinton has set the tone for the Democratic party, saying that we should not apply old regulations (like the Securities Act of 1934) to new technologies like XRP if we want to avoid killing the industry.
Ripple Labs is likely to continue to become more politically involved as they evolve into a major US tech company. If they beat this lawsuit they could grow to be one of the largest tech companies in Silicon Valley over the next 10 years.
In the event that the S.E.C. is successful in their civil lawsuit, Ripple executives have stated they may move the company outside of the US. Multiple countries have recognized that XRP is an asset and not a security, including Singapore, Switzerland, and Japan.
Ripple Labs may find that the Democratic judge overseeing their case is actually on their side, and dismisses all or most of the charges brought by the S.E.C.. This would set the precedent for the entire market and clear the way for institutions to start buying a large variety of crypto assets.
Many institutions are cautious about getting involved in cryptocurrency because of unclear regulations from the S.E.C.. This case could be the turning point by creating precedent which has proven in court that XRP and assets like it are not securities, meaning the S.E.C. has no enforcement authority.
According to Ripple General Counsel Stuart Alderoty, after the trial is over instead of using the “Howey Test” to determine if an asset is a security, it will be called the “Ripple Test.” Ripple executives and lawyers remain confident that they will win this case if it is brought to trial.
Ripple’s lawyers will likely submit a motion to dismiss based on the S.E.C. having no enforcement authority over XRP because it fails the Howey Test. If the judge agrees with them the case could be quickly thrown out, clearing the regulatory path for many other digital assets which could be considered securities if Ripple loses this lawsuit.
The Howey Test is still open to interpretation as to what kinds of digital assets it can be applied to. Some lawyers have argued that assets like XRP pass the Howey test and are securities, while many others have argued that they are not.
Ultimately, it will depend on what Judge Torres thinks, and she might agree more with Ripple’s Democratic interpretation of the law than with the Republican S.E.C. interpretation. In the past Judge Torres has disagreed with the S.E.C. and dismissed some of their claims, we will soon find out if she also disagrees with the S.E.C. on this matter and dismisses Ripple’s case with prejudice.
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