“Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear.”
The endless debate over regulatory clarity within the digital asset space has reached Senator Elizabeth Warren, who requested information about the regulator’s current authority over the industry and what is needed from Congress to close existing gaps in regulation.
The deadline for the response was July 28, the day Representative Don Beyer introduced a piece of legislation to protect consumers and promote innovation in the space: The Digital Asset Market Structure and Investor Protection Act.
Senator Warren’s request implicitly removed the CFTC from the equation and the SEC’s Gensler response, now made public, makes it clear that is the agency’s expectation.
“A typical trading platform has more than 50 tokens on it. In fact, many have well in excess of 100 tokens. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50 or 100 tokens, any given platform has zero securities”, said SEC Chair Gary Gensler in the letter.
The SEC is also arguing in favor of the “Howie Test” to ascertain the legal status of any given digital asset. whether it is a security or not. “Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear. The SEC has taken and will continue to take our authorities as far as they go”.
A number of academics have said otherwise, including in Rutgers Law School and the American Enterprise Institute, suggesting a different approach to digital assets.
The SEC v. Ripple lawsuit is potentially the most critical threat to the validity of the Howie Test. The financial watchdog has recently stated so when it warned the Court that a Ripple win on the Fair Notice Defense would deem it null.
That is also why many law experts close to the legal battle over the nature of XRP have said that a Ripple win on summary judgment on that defense “could save the industry from the SEC”.
SEC v. Ripple: XRP is not subject to SEC under pending bill, said attorney Thien-Vu Hogan
The tone among regulatory agencies seems to be getting more aggressive as the SEC looks to claim the digital asset space for itself. Earlier this month we’ve seen a few exchanges between CFTC and SEC Commissioners defending their authority over the asset class.
In the meantime, the fact discovery period is about to wrap up, and much remains to be done as both parties are withholding valuable documents from the opposing side.
The SEC wants to compel Ripple to hand over terabytes of Slack messages that could be critical to the agency’s case that XRP was marketed as a security.
Ripple, on the other hand, has grown frustrated with the plaintiff’s use of the privilege principle to keep most documentation unavailable to the defendants. The Court will hear the views of both parties to make a ruling on that matter.
Judge Sarah Netburn asked the defendants to write a 15-page “monster brief”, which seems it will include parts of the William Hinman deposition transcript.