The US Securities and Exchange Commission (SEC), already in a tortured relationship with the cryptocurrency industry, is in for another blow to its relationship when former Ripple CEO Brad Garlinghouse publicly attacks it once more for its accusations against the crypto issuer. After filing a lawsuit against the SEC, crypto derivatives platform Bitnomial claimed that XRP futures contracts were not valid, and those comments from the CEO of Garlinghouse came soon after.
Ripple’s Garlinghouse, who has long spoken out against the actions the SEC has taken against Ripple and its native token, XRP, said that the agency acted as though it disagreed with an important court ruling that determined that XRP is not a security in specific situations. And he was so bold as to call the SEC a ‘renegade‘ agency, a rogue agency that operated outside the law. His strong words follow his company filing legal action against the SEC late Tuesday.
Ripple Challenges SEC’s Joint Regulatory Oversight Claims
In its suit, Bitnomial Exchange LLC claims that the SEC’s push for joint regulatory oversight of XRP futures contracts is unconstitutional, pointing out that such contracts should come under CFTC jurisdiction, not the SEC’s. Bitnomial’s statement was clear: “Bitnomial Exchange LLC has filed suit to stop the SEC from going far beyond its statutory authority to seek jurisdiction over Bitnomial’s XRP futures contracts under sole CFTC jurisdiction.”
XRP futures aren’t considered securities by the company, and therefore only require regulation from the CFTC. The SEC lawsuit joins the ranks of numerous other suits against what many in the crypto industry consider the regulator to be overreaching in its use of power, hindering invention and growth in the fast-moving crypto sphere.
Garlinghouse, echoing Bitnomial’s stance, expressed his frustration with the SEC’s approach, stating: The SEC now thinks it can act above the law, upholding a court’s ruling that XRP is not a security, despite filing an appeal to the ruling which it now seems has failed. We will be watching and deciding what we are going to do about the SEC.
It is part of a continuing standoff between Ripple and the SEC, which first started in December 2020 when the regulator sued Ripple for conducting an unregistered securities offering selling $1.3 billion worth of XRP.
However, since a pivotal court ruling in July 2023 upholding that XRP is not a security, Ripple has maintained consistently that XRP is not considered a security. U.S. District Judge Analisa Torres ruled that programmatic sales of XRP through public exchanges were not securities transactions, even though those sales were not subject to securities transactions. However, she also ruled that part of the SEC’s claims that direct sales to institutional investors were still securities would stand.
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Ripple supports Bitnomial’s Lawsuit against the SEC Authority
Both parties appealed after the court sentenced them with a mixed ruling. Ripple filed a cross appeal, arguing that the judge’s ruling left the door open to securities claims from direct XRP sales, while the SEC formally appealed Judge Torres’ decision. The case, one of the most closely watched legal battles in the cryptocurrency industry, continues to unfold as both appeals wind their way through the courts.
Chief Legal Officer of Ripple, Stuart Alderoty, is the legal representative of Ripple’s legal team, concerned that the SEC’s approach to digital assets is indeed overreach. Speaking to Gulliver, Alderoty said if the SEC’s actions in the Ripple case fray the edges of constitutional authority, then they could imperil the balance of regulatory power in the U.S. financial system. Repeatedly he has protested the SEC’s exceeding its statutory mandate, particularly in its attempt to regulate far more digital assets than legislatures have authorized.
These concerns are only compounded by Bitnomial’s lawsuit against the SEC. The exchange is questioning the SEC’s jurisdiction over XRP futures, challenging the scope of the agency’s authority to oversee goods typically overseen by the CFTC. Bitnomial’s legal challenge could set a major precedent by reining in the SEC’s ability to regulate cryptocurrency derivatives and related financial products that tap digital assets.
The legal battles between the SEC and Ripple have spilt over into Bitnomial, and the broader cryptocurrency industry remains tied into a battle for clarity in what regulatory rules apply. Many crypto firms argue that the U.S. regulatory environment is unclear and inconsistent, making it hard, if not impossible, for the industry to be innovative in the current environment.
Conclusion
The high tensions between regulators and the crypto industry are underscored by the ongoing legal battles between Ripple, Bitnomial, and the SEC. In pushing back against the SEC asserting authority over digital assets, these cases may also signal how outcomes will shape regulation of digital asset innovation, impacting U.S. crypto market oversight for years to come.
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