Former SEC Director Says Ripple’s Legal Fate is Now Worse Than Ever

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Ripple Labs, the company behind the prominent XRP, faced legal challenges from the U.S. Securities and Exchange Commission (SEC) for years. Not long ago, the token got declared as a non-security by the Judge, a ruling that has made all of us quite excited. Well, not all of us. Not really.

A Stark Warning

John Reed Stark, who previously held the position of Chief at the SEC Office of Internet Enforcement, provided insights on a decision handed down by SDNY District Judge Jed Rakoff. The decision permits the SEC to proceed with its lawsuit against Terraform Labs and its founder, Do Kwon.

This is a notable development, as Judge Rakoff specifically refused to uphold the distinction made in the Ripple case between institutional sales and those to the public.

The decision made by Judge Rakoff essentially refutes the approach taken in the Ripple case, said Stark. Previously, the court had found differentiation between institutional buyers and those who obtained their coins through secondary transactions. 

The court stated that only those who purchased directly from the defendants would have expectations linked to the defendants’ actions. Judge Rakoff, however, found no reason to make such a distinction, emphasizing that the source of purchase does not alter the reasonable expectation of profits from the coins. 

The Impact of the Major Questions Doctrine

A further highlight of the decision was the rejection of Terraform Labs’ invocation of the “major questions doctrine.” According to Stark, this legal principle restricts regulatory agencies like the SEC from greatly overstepping their defined role. 

While the doctrine has been applied by other crypto defendants, including Coinbase, Judge Rakoff reasoned that the cryptocurrency industry, although important, does not compare to other sectors like energy and tobacco in terms of economic and political significance.

Judge Rakoff’s Prestigious Stance on Securities Law

Widely respected in legal circles, especially among SEC lawyers, Judge Jed Rakoff is considered one of the foremost authorities on securities law within the U.S. federal court system. Since 1996, he has served as a U.S. district judge for the Southern District of New York and has made significant contributions to securities and criminal law.

As other cases come before the courts, the wider crypto community will be watching closely to see how this legal philosophy evolves. Whether or not Ripple’s legal fate worsens, these decisions are shaping the future of how cryptocurrencies are understood, regulated, and integrated into the global financial system.