Joseph Hall, a former SEC official and a lawyer at Davis Polk & Wardwell, who now also represents Grayscale Investments, said, after former SEC official Joseph Grundfest questioned the ‘true reasons’ of the SEC’s case against Ripple last week, He expressed his thoughts on the subject.
In his article titled “Ripple Token Case Highlights Need for SEC Clarity in Crypto,” Hall discussed the need for the SEC to provide clarity on the regulation of digital assets.
While Hall’s criticism is somewhat kinder than Grundfest’s criticism, the point of the article is clear: it’s not the right time to apply the Howey test to XRP and other cryptocurrencies. As Hall points out, a securities definition must exist to establish the US Securities and Exchange Commission (SEC) jurisdiction. So the main debate is “Is XRP a security?” In order to answer the question, it is necessary to know what a security is.
At this point, the Howey test comes to the fore. An important part of deciding whether XRP is a currency or a security could be the Howey test created by the 1946 Supreme Court case. This decision defined a security as an investment of money in an organization that is shared in anticipation of earning from the businesses of others. Howey test implementation is absurd, according to Hall:
“Imagine trying to explain what an iPhone is in a language your great-grandfather would understand immediately after World War II. It’s that easy to predict which digital assets are securities under the post-war Howey test. ”
Hall urged Gary Gensler, who was recently appointed by Joe Biden as the new chairman of the SEC, to use the case to “set a different path” in the treatment of cryptocurrencies.
As the former SEC official noted, there are numerous “problems” in the case. Hall, for example, believes XRP should be classified as securities along with Ethereum (ETH). When Bill Hinman, director of the Corporate Finance Division at the SEC, said in a 2018 speech that Ethereum is not a security, it would “be a fair claim” for XRP to be treated the same.
However, Hall, like Grundfest, criticized the timing of the case. In addition, he said, the SEC’s decision to file a lawsuit wreaked havoc among investors that it should protect:
“Before the news of the SEC’s intent came to light, regardless of the merits, XRP was trading with a market capitalization in the range of $ 25 billion to $ 30 billion, which means any sudden move by the SEC will definitely lead to heavy investor losses. . ”