SEC wants to ‘remake the law,’ rather than ‘apply it,’ says Ripple General Counsel

After two years of litigation, Stuart Alderoty, general counsel at Ripple, told CoinDesk TV’s “First Mover” he sees “the beginning of the end” because the SEC’s case has fallen short.

The legal battle between the U.S. Securities and Exchange Commission (SEC) and payment protocol company Ripple Labs could soon be coming to a close – that is, if a federal judge decides the crypto company did not violate federal securities laws.
Stuart Alderoty, general counsel at Ripple Labs, told CoinDesk TV the crypto company is feeling “confident,” and thinks it could be “the beginning of the end” of the case, which began in 2020.

“There are no allegations of fraud in this case. There are no allegations of misrepresentation. There are no allegations of market manipulation,” Alderoty said during an appearance on CoinDesk TV’s “First Mover.” “It really is a technical issue and we believe it’s an issue that can be resolved as a matter of law by the judge.”

Both the SEC and Ripple have filed summary judgment motions with the U.S. District Court for the Southern District of New York in a bid to avoid going to a full trial. CoinDesk sought comment from the SEC but a response was not available by press time.

In December 2020, the SEC sued Ripple Labs for allegedly selling XRP, a cryptocurrency closely tied to the company, as unregistered securities transactions. The SEC alleges the company sold XRP tokens while letting investors believe they would get a substantial return on the company’s profits.

Alderoty, who has been with Ripple for nearly four years, reiterated his stance that Ripple does not fulfill the requirements set by the Howey Test in a U.S. Supreme Court case. The test helps determine whether or not something can be deemed a security, and therefore an “investment contract.”

We believe that unless there is a contract for an investment, there’s no case and actually, there’s no authority for the SEC to even weigh in,” Alderoty said. “We believe that they fail on every single prong of the Howey Test.”

Aldertoy added that the SEC does not “identify any contract for an investment between Ripple and an XRP holder,” and that there were no post-sale-guarantees on behalf of Ripple to investors.

“What the SEC is suggesting is that a common interest is a substitute for a common enterprise and it’s not,” Alderoty said. “We've made no promise to any holder of XRP that we will take steps, or are obligated to take steps, on their behalf to do those things.”

Was Ripple was singled out among the different projects within the crypto ecosystem? He said the company may have been used by the SEC to set an example. The aftermath, however, led “nearly every U.S. exchange to delist or suspend trading in XRP,” Alderoty said, which erased “$15 billion in market capitalization” from the company and prompted it to move its operations “offshore.”

“Maybe they [the SEC] thought they [could] send a broader message to the entire market,” Alderoty said. “But I think what they've learned is that if you challenge a well-resourced company, that well-resourced company can put on a very robust defense and really expose the SEC, that what [it's] doing in this case is not applying the law.”

The SEC is “seeking to remake the law,” Alderoty said. “They’re engaging in litigation behavior to further a desired result rather than a faithful allegiance to the law.”