By contrast, the SEC noted that the defendants are ready to proceed to summary judgment without a ruling on the now highly publicized Hinman emails and documents.
The latest extension and the SEC’s inability to close out the case against Ripple Lab raise several material questions.
The big question remains, however, whether XRP is a security or not a security.
As the case progresses through its twist and turns, Gary Gensler and the SEC may be losing credibility.
U.S Lawmakers Question Gensler and the SEC on Digital Assets
On Monday, defense lawyer James Filan shared a letter addressed to Gary Gensler. Filan has been actively sharing updates on the ongoing SEC v Ripple case. Monday’s House of Representatives Committee on Financial Services letter did not reference the Ripple case directly.
— James K. Filan 🇺🇸🇮🇪90k+ (beware of imposters) (@FilanLaw) April 18, 2022
The letter did raise concerns over recent SEC law change proposals and the impact of such rule changes on digital assets.
Lawmakers cited two rule changes.
First Rule Change Looks to Broaden the Definition of an Exchange
According to the letter, dated January 2022, the SEC proposed to expand the definition of an exchange. The Securities Exchange Act of 1934 defines an exchange to include,
“Any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.”
The letter goes on to discuss rule clarifications from 1998 and the SEC adoption of Rule 3b-16 to clarify the definition of “exchange” under the Exchange Act. Rule 3b-16 defines an exchange as,
“Any organization, association, or group of persons that (1) brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.”
Lawmakers highlight that such a rule change would expand the definition of an exchange to include “Communications Protocol Systems,” a step that lawmakers view as beyond the SEC’s statutory authority.
The letter notes that the SEC intends to take an expansive view in defining a “Communication Protocol System.” Such an outcome would create market uncertainty and likely stifle innovation.
While the first rule change aims at crypto exchanges, a second rule change is even more alarming for the digital asset space.