SEC Urged to Reach Settlements with Coinbase and Ripple: Time for Resolution

Following Judge Analisa Torres’ recent ruling in the SEC v. Ripple case, legal experts are calling for the United States Securities and Exchange Commission (SEC) to settle the remaining disputes with Ripple Labs and Coinbase. The SEC’s approach to cryptocurrencies has relied on a broad interpretation of securities, using the SEC v. Howey case as a legal benchmark. However, this approach, initially designed to target fraudulent schemes, poses challenges for legitimate crypto projects to register with the SEC.

Judge Torres’ ruling highlighted a unique challenge in applying the Howey test to crypto tokens. She concluded that the sale of XRP tokens to retail investors did not necessarily align with Ripple’s entrepreneurial efforts, thereby failing one element of the test. This decision has significant implications for the SEC’s case against Coinbase, as it makes it harder for the SEC to target secondary markets for crypto securities, such as trading on Coinbase’s platform.

Moreover, the SEC may face additional hurdles from the Supreme Court, which has shown an eagerness to restrict administrative agencies’ power through the evolving major questions doctrine. This doctrine could potentially curtail the SEC’s ongoing enforcement actions in the crypto space.

Given these circumstances, experts argue that the SEC’s best course of action is to pursue settlements and collaborate with Coinbase. Notably, Coinbase has already demonstrated a willingness to engage with the SEC by filing a request for rulemaking to establish an adapted listing process for crypto assets. Many crypto lawyers, including former SEC and big law alumni, are ready to assist in developing a regulatory framework tailored to the unique characteristics of crypto tokens.

The current SEC disclosure rules, designed for traditional assets and entities, do not adequately address the needs of crypto projects. For instance, requirements related to boards of directors, executive compensation, shareholder proposals, and financial statements do not align with the decentralized nature of blockchain networks. On the other hand, crucial aspects like tokenomics, audits of blockchain security, and smart contracts underlying decentralized finance (DeFi) exchanges are not covered by existing SEC disclosure rules.

To avoid a potential collision course, it is vital for the SEC to collaborate with crypto lawyers and establish a workable regime for listing and disclosing crypto assets. This alternative approach would better protect crypto asset buyers and ensure compliance with the rule of law. The SEC should move away from its simplistic “just come in and register” rhetoric and work toward a comprehensive solution that respects the unique features of the crypto industry.

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