Ripple Labs has fired a fresh legal volley in Washington, dispatching a 4-page memorandum to the US Securities and Exchange Commission’s Crypto Task Force on 27 May. Chief legal officer Stuart Alderoty announced the filing on X, stressing that it responds directly to Commissioner Hester Peirce’s “New Paradigm” speech of 19 May, which asked the pivotal question: “When does a non-security crypto asset that was once part of an investment contract become separated from that contract?”
Ripple Pushes SEC For Clarity On XRP
In the opening lines of the letter Ripple thanks staff for a 20 May meeting and frames its submission as a doctrinal answer to Peirce’s query. It leans on the 2022 academic treatise The Ineluctable Modality of Securities Law by Lewis Cohen et al., quoting it in full: “[T]here is no current basis in the law relating to ‘investment contracts’ to classify most fungible crypto assets as ‘securities’ when transferred in secondary transactions…” Ripple argues that the paper remains “the most accurate reflection of existing law.”
The company advances a two-pronged litmus test for determining when a token has definitively “severed” from an accompanying investment contract. Under Ripple’s proposal, any later sale of the asset is presumed not to be a securities transaction unless (i) a material promise made to the original purchaser remains outstanding and (ii) the subsequent holder retains enforceable rights arising from that promise. Examples of qualifying promises, the letter states, would include commitments to build a functional blockchain or to provide dividends—whereas “general public statements or puffery should not qualify.”
Ripple positions its framework as consistent with Judge Analisa Torres’s landmark July 2023 ruling, which found that XRP itself is not a security, even though certain institutional sales had been investment contracts. By invoking that ruling Ripple reminds the Commission that secondary-market trading of XRP—blind order-book sales in particular—has already been judicially blessed as non-securities activity.
While recognizing the SEC’s worry that bad actors might exploit legal lacunae, Ripple tells the agency that closing any genuine gap is “Congress’s—not the SEC’s—to fill.” In the interim, Ripple endorses a “well-designed safe harbor” but warns that concepts such as “fully functional” or “sufficiently decentralized” are too malleable to anchor regulatory certainty.
Commissioner Peirce’s own remarks supply the backdrop. In “New Paradigm” she conceded that “most currently existing crypto assets in the market are not [securities]” and highlighted the difficulty of “determining when a non-security crypto asset subject to an investment contract separates from the investment contract.”Peirce floated, among other options, a time-limited safe harbor. Ripple seizes on that momentum, contending that its bright-line test is superior to “decentralisation” metrics and would let functional networks circulate tokens “openly, transparently, and permissionlessly” without imposing disclosures that suggest control where none exists.
The submission arrives as the long-running SEC v. Ripple litigation edges toward final resolution. Earlier this month the Commission lodged a proposed settlement that would cap Ripple’s institutional-sale liability and lift the remaining injunction on XRP distributions, but the court has not yet approved the pact.
Market reaction has been muted. XRP continues to trade near the $2.30 zone.
Featured image created with DALL.E, chart from TradingView.com
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