Will Institutional Investors Attempt To Bypass SEC Regulations?

  • In the SEC vs. Ripple case, the U.S. district judge ruled that institutional sales are security, while programmatic sales weren’t.
  • Crypto lawyer Kayvan Sadeghi spoke about how institutional investors might try to bypass the judge’s ruling.
  • Judge’s statement that XRP isn’t a security was considered a win for the crypto industry.

Crypto journalist, and author of The Cryptopians, Laura Shin discussed the recent events in the SEC vs. Ripple case in a YouTube video, with Jake Chervinsky, chief policy officer at the Blockchain Association, and lawyer Kayvan Sadeghi, partner at Jenner & Block.

Lawyer Sadeghi talked about how people might try to bypass the recent SEC vs. Ripple ruling, “I think what people should not take from this is so they can just rush directly to the secondary market and come up with some scheme to go to bypass … and go straight to retail.”

On 13 July, the United States district judge stated what is considered a win for the cryptocurrency. Judge Torres separated the types of transactions in XRP by Ripple into three forms: direct sales to institutional buyers, programmatic sales on secondary trading platforms, and transfers as compensation for services. While institutional sales met the Howey criteria, programmatic sales and other distributions didn’t.

The SEC’s motion for summary judgment is GRANTED as to the Institutional Sales, and otherwise DENIED. Defendants’ motion for summary judgment is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen’s and Garlinghouse’s sales, and DENIED as to the Institutional Sales.

According to the court, Institutional Sales deals with investment contracts that fall under the SEC as it is a security. Based on Howey’s test, the criteria to determine the existence of an investment contract was met.

In SEC v. Howey case, “the Supreme Court held that under the Securities Act, an investment contract is “a contract, transaction[,] or scheme whereby a person [(1)] invests his money [(2)] in a common enterprise and [(3)] is led to expect profits solely from the efforts of the promoter or a third party.” And the SEC alleged that Ripple sold XRP as an investment contract, which means the transaction is considered a security, “the subject of a contract, transaction, or scheme is not necessarily a security on its face.”

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