A cryptocurrency firm facing a suit from the Securities and Exchange Commission is challenging the commission’s authority to regulate crypto assets, according to news reports.
Last weekend, Ripple Labs filed a motion to dismiss a 2020 suit accusing the firm and its principals of misleading investors in its XRP token, Bloomberg writes. The suit claimed that the firm and its executives failed to register XRP as a security and failed to provide proper disclosure, according to the news service.
Ripple failed to register their offers and sales of XRP or satisfy any exemption from registration, in violation of the registration provisions of the federal securities laws, the SEC said in its 2020 complaint.
But Ripple claims its token can’t be treated as a security because of a lack of any “investment contract” giving investors rights or obligating the issuer to act in their best interests, according to Bloomberg.
“The SEC’s untethered position would convert the sale of all types of ordinary assets — diamonds, gold, soybeans, cars, and even works of art — into sales of securities. Congress has given the agency no such authority,” Ripple said in its weekend filing, according to Bloomberg.
The SEC, meanwhile, has asked for a ruling without trial, claiming that buying the token is an “investment in a common enterprise with other XRP holders and with Ripple,” with investors expecting a profit, according to the news service.
Ripple General Counsel Stu Alderoty said in a statement that the SEC is “not looking to apply the law — they are looking to remake the law in the hopes that it can impermissibly expand their jurisdiction,” according to Bloomberg.
The Ripple case could help define the SEC’s role in regulating crypto assets, which could affect dozens of other digital coins, the news service writes.
The SEC chair has steadily pushed for the commission’s oversight of digital assets, and earlier this month the regulator announced the creation of a new department tasked with reviewing disclosures related to crypto assets.
Lawmakers, meanwhile, have introduced at least two bills that would give oversight of digital assets to the Commodity Futures Trading Commission instead.