SEC Emails Unveil Ripple's Defense: Ether Regulation Debated

SEC Emails Unveil Ripple's Defense: Ether Regulation Debated
A series of emails released on Tuesday by Ripple as part of its defense against a Securities and Exchange Commission (SEC) lawsuit revealed discussions among SEC officials regarding the need to regulate Ether. The emails were tied to a speech given in 2018 by William Hinman, the former Director of Corporation Finance, where he stated that Ether did not appear to be a security.

The emails, which were made public alongside an updated motion for summary judgment, triggered a spike in XRP's price upon their initial release.

The correspondence unveiled deliberations among SEC officials regarding the clarity of Hinman's speech in categorizing Ether (ETH) as a non-security. Former SEC Director of Trading and Markets, Brett Redfearn, expressed the need for stronger language to affirmatively state that Ether is not a security, or alternatively suggested using language similar to that employed for Bitcoin to maintain consistency in disclosure regimes. Redfearn further emphasized that certain parts of the speech seemed likely to create confusion regarding the status of Ether.

Valerie Szczepanik, the current head of the SEC's FinHub group, conveyed her belief in an earlier email dated May 25, 2018, that less detail would be preferable in the speech. Szczepanik referred to the introduction of a concept that would generate extensive discussion and suggested leaving room for such deliberation.

An earlier version of the speech, which did not mention Ether but made reference to Bitcoin, was discussed by Laura Jarsulic, an attorney with the SEC's Office of General Counsel, in a June 12 email. Jarsulic proposed an edit to clarify the Supreme Court's ruling in the SEC v. W. J. Howey Co. case, which is commonly used as a test to determine whether something qualifies as a security. The suggestion aimed to highlight that the purchase of land and service contracts were considered security purchases, while the purchase of land alone was not.

Jarsulic also noted the possibility that tokens could be deemed securities in certain circumstances, such as when a company issues tokens instead of shares.

The emails indicated that SEC officials met with Ethereum founder Vitalik Buterin, seemingly to discuss the role of the Ethereum Foundation.

Noteworthy recipients of the emails included former SEC Enforcement Directors Stephanie Avakian and Steven Peikin, former Division of Investment Management Director Dalia Blass, former Chief Counsel and Acting Director of the Division of Trading and Markets Heather Seidel, among others.

Ripple has been sued by the SEC in 2020 for allegedly selling unregistered securities. Ripple has consistently distanced itself from XRP, the token powering its products and the XRP Ledger network, but any developments in the case have implications for XRP prices.

After the publication of the emails, Ripple Chief Legal Officer Stu Alderoty tweeted that it is now evident that Hinman disregarded multiple warnings about the speculative nature of his speech, lacking a legal basis and straying from the Howey factors. Alderoty claimed that the speech exposed regulatory gaps and contributed to greater confusion in the market.

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