On Tuesday, October 3, the US Securities and Exchange Commission (SEC) suffered a major setback in its bid to assert its authority over the US crypto sector. But does the latest development provide long-awaited legal clarity over the securities status of cryptocurrencies?
For Solana and other Ripple-like technologies, the case’s ultimate conclusions could have major consequences for years to come.
A single question forms the crux of the SEC’s various lawsuits against crypto firms, including Ripple Labs, Coinbase and Binance: are cryptocurrencies securities?
Or, to use the jargon of US securities law: does a crypto token sale constitute an investment contract? And if so, when?
Between its lawsuits against Coinbase and Binance, the Commission has attempted to classify 19 tokens as securities, including Solana (SOL) Cardano (ADA) and Polygon (MATIC).
Commenting on the move at the time, the Solana Foundation said it “disagrees with the characterization of SOL as a security.” It added that it will work with policymakers to help create “legal clarity” as to the token’s status under US securities law.
So far, the SEC itself hasn’t attempted to take on Solana to the same degree as it has Ripple.
However, both the Solana Foundation and its for-profit sister organization Solana Labs were named as co-defendants in a class action lawsuit that alleges SOL’s Initial Coin Offering (ICO) amounted to an unregistered securities sale.
As such, Solana’s legal fate has an inextricably bond with Ripple Lab’s ongoing battle with the SEC.
Back in July, Judge Analisa Torres issued a critical ruling in the case of SEC vs. Ripple Labs which finally appeared to answer the crypto securities question.
While Torres agreed with the SEC considering Ripple Labs’ sales of XRP tokens directly to institutional investors as an investment contract, when it came to sales of XRP on crypto exchanges, she sided with Ripple.
In essence, the judge ruled that XRP can be classified as a security under certain conditions, but the majority of XRP sales do not fall within the SEC’s jurisdiction.
Although the Ripple case deals specifically with XRP, the SEC has made similar arguments about almost every major crypto token barring Bitcoin and Ether.
As such, Judge Torres’ recent decision to strike down an SEC appeal against her initial ruling has been received as an important victory for the crypto sector.
Judgment by judgment, US crypto firms appear to be inching closer to a ruling that will settle the crypto securities question once and for all. However, unless the SEC changes course, the issue may ultimately have to be settled by the Supreme Court.
In the wake of Judge Torres’ initial ruling against the SEC, other firms have increasingly challenged the legal grounds on which it claims dominion over the crypto sector.
For instance, after initially caving in to SEC pressure, LBRY Inc. did an about-turn last month, opting to appeal a federal court judgment that sided with the SEC.
Similarly to other cases, the SEC’s lawsuit against LBRY charged the firm with engaging in an unregistered securities offering when it financed the development of the LBRY network by selling tokens to investors.
Commenting on the decision to appeal the initial ruling, LBRY’s CEO Jeremy Kauffman told CCN that the SEC’s characterization of LBRY as security was “unjust and incorrect”.
“The SEC has shown clear intent to use this ruling to damage the cryptocurrency industry more broadly. We won’t let them,” he stated.