In a landmark crypto-currency litigation case pending before the US District Court in the Southern District of New York, the Securities and Exchange Commission (“SEC”) brought an action against Ripple Labs, Inc. and its officers (“Ripple”). The crux of the SEC’s complaint is that Ripple sold unregistered securities – XRP – a virtual currency designed and engineered to be a “native currency” of the XRP Ledger, which purports to settle transactions in “3 to 5 seconds” according to Ripple. There are approximately 100 billion XRP in circulation with Ripple owning 50.2% and 49.8 billion held by outside investors. Most recently, the SEC and Ripple filed Motions for Summary Judgment as to the determination of whether XRP is a security that falls within the ambit of the registration and disclosure requirements of the 1933 Securities Act. The core arguments center around the seminal test espoused in SEC v. W.J. Howey Co. (a case that is remarkably over 75 years old) as to whether XRP is a security, or not. The Howey test is comprised of three elements: “an investment of money in a common enterprise with profits to come solely from the efforts of others.” For its part, Ripple has argued that XRP is not a security subject to registration or disclosure.
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