Ripple Labs has submitted a new legal document in Washington addressing the cryptocurrency task force of the U.S. Securities and Exchange Commission (SEC), dated May 27. This filing responds to remarks made by Commissioner Hester Peirce in her May 19 speech titled “New Paradigm,” wherein she questioned the point at which a crypto asset, initially classified as a security and part of an investment contract, ceases to be governed by that contract. Ripple’s letter begins by expressing gratitude to SEC staff for a meeting held on May 20 and characterizes the submission as a theoretical response to Peirce’s inquiry.
Building upon a 2022 academic paper, “The Ineluctable Modality of Securities Law,” Ripple argues there is no existing legal basis to classify most fungible crypto assets as securities, particularly once they enter the secondary market. The company proposes a two-pronged test to determine when a token is fully disassociated from its original investment contract. According to this framework, any subsequent sales should not be considered securities transactions unless (i) a significant promise made to the original purchaser remains outstanding, and (ii) enforceable rights derived from that promise have been transferred to the subsequent holder.
Ripple aligns this approach with Judge Analisa Torres’s July 2023 ruling, which concluded that XRP itself is not a security, despite certain institutional sales being deemed investment contracts. The filing also highlights that secondary market trading of XRP, especially via blind order book transactions, has already been legally recognized as non-security activity.
Acknowledging the SEC’s concerns, Ripple emphasizes that closing the regulatory gap is a matter for Congress rather than the Commission. Meanwhile, the company supports the concept of a well-structured safe harbor but cautions that terms such as “full functionality” or “sufficient decentralization” are inherently flexible, complicating the establishment of firm regulatory assurances.
This latest submission emerges as the protracted SEC v. Ripple lawsuit approaches a critical juncture. Earlier this month, the SEC proposed a settlement that would limit Ripple’s liability for institutional sales and lift restrictions on XRP distribution; however, the court has yet to approve this agreement. Market reaction to the development has been muted, with XRP’s price holding steady near $2.30.
Further details about this update can be found at: https://bitcoinist.com/ripple-new-letter-sec/
