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XRP lawsuit update: Ripple’s legal officer cites 77-year-old case to debunk SEC’s claims

XRP lawsuit update: Ripple's legal officer cites 77-year-old case to debunk SEC's claims
Paul L.

The ongoing legal battle between blockchain firm Ripple and the Securities Exchange Commission (SEC) continues to see new developments, with both sides identifying areas of weakness in their opponent’s argument.

In the latest update, Stuart Alderoty, the chief legal officer at Ripple, in a tweet on May 13, criticized the SEC’s stance on the “common enterprise” argument, citing the regulator’s unsuccessful argument in the Supreme Court’s “Howey” case of 1946. 

In the case, the SEC argued that investment in a “common enterprise” was not necessary if there was a “community of interest,” which was rejected by the Supreme Court. Consequently, Alderoty pointed out that the SEC was wrong back then and also now concerning XRP

The legal officer argued that common interest is not similar to common enterprise and that the SEC is wrong to claim that all XRP holders are involved in a common enterprise.

Misinterpreting the Howey test

Alderoty has accused the regulator of attempting to misinterpret the Howey test. Notably, the disagreement focuses on the “common enterprise” aspect of the test, with Ripple’s lawyers claiming that the SEC is stretching the definition beyond its original intent.

As the legal battle enters its third year, the regulator has argued that the fungibility of XRP serves as evidence of a common enterprise. The SEC contends that all units of XRP are interchangeable and that their value fluctuates together, forming part of a common enterprise.

In reaction to Alderoty’s tweet, crypto lawyer Bill Morgan suggested that the SEC is banking on an old point that the Supreme Court had already rejected.

“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 test was intended by the Court to be flexible. The SEC does this in relation to crypto by an expansive view of common enterprise that allows it to avoid the word ‘enterprise’ and the need to link it to specific transactions and focusing instead on the adjective common,” he said.

Summary judgment uncertainty 

As the “Howey” case remains a source of contention among both parties, the crypto community is anticipating the summary judgment date for the ongoing legal dispute. 

To recap, the SEC has accused Ripple of selling unregistered securities in the form of XRP tokens. Speculations abound that the matter may be resolved in the year’s first half. Several potential outcomes have been suggested, but Ripple has secured a few minor victories throughout the proceedings. 

Meanwhile, Ripple CEO Brad Garlinghouse appeared at the XRP Las Vegas 2023 event, expressing his gratitude towards the XRP community for their unwavering support during the legal battle.

At present, XRP, which remains at the heart of the dispute, is trading at $0.43 with a loss of less than 0.5% over the past 24 hours.

Featured image via PlanXRP YouTube

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