Lawyer Jeremy Hogan pointed out the main reason why XRP is not a security.
Lawyer Jeremy Hogan on twitter pointed out the main reason why XRP is not a security. He noted:
The #1 reason why XRP is not a Security.
First, under the legislative definition of a security, XRP can only POSSIBLY fit under the definition of an “investment contract.” It is not a stock or bond, etc.. Even the SEC concedes this: “investment contract.”
An “investment contract” analysis is governed by the “Howey” case and progeny.
The “test” in the case (investment in a common enterprise with expectation of profits from efforts of others) was in response to a lower court opinion that a “speculative” investment was required.
The Howey case did not focus on the “contract” part of “investment contract” but took it as a given that a “contract” was necessary as it was responding to the lower court and, indeed, had just addressed the “contract” part of the test just before rendering the Howey opinion.
In the Joiner case the Court had just discussed the existence of a contract and had decided that there was an enforceable “implied” agreement or perhaps an explicit legal agreement but, either way, there WAS a contract between the offeror and purchaser – an “investment CONTRACT.”
In the Ripple case, the SEC has failed to argue that there was an implied or explicit contract of investment.
Instead it argues that the purchase agreement is all that is required – and that is all it proves.
But that argument tears the “investment” from the “contract”…
…as a simple purchase, without more, cannot be an “investment contract,” it is just an investment (like buying an ounce of gold) as there is no obligation for Ripple to do anything except transfer the asset.
As is often the case, because this is so obvious,…
…there is not a lot of case authority directly on point.
But ALL of the “blue sky” cases, which the Howey case explicitly states dictate the definition of “investment contract,” ALL of them had a “contract” regarding the “investment.”
Indeed, how can a person “reasonably rely” on an offeror to make them a profit when they have zero legal recourse when that offeror fails to come through?
They cannot. Even the oft-quoted four part test implies that a “contract” of some sort is required.
If the result seems harsh, keep in mind that the designation “security” is not meant to protect a would-be investor from making bad decisions.
The securities laws are only to require that offerors make certain disclosures regarding the contract that the purchaser is entering.
The issue is NOT whether Ripple used money from the sale of XRP to fund its business.
The issue is whether the SEC has proven that there was either an implied or explicit “contract” between Ripple and XRP purchasers relating to their “investment.”
There was no such contract.
If you happen to be Judge Torres’ law clerk, I hope this helps as you begin drafting the decision.
Call me if you need anything else! :)