Ripple Labs’ Chief Legal Officer, Stuart Alderoty, has openly criticized the United States Securities and Exchange Commission (SEC) for its continued use of the term “crypto asset security,” which he claims lacks any legal foundation.
In a recent development, the SEC indicated in an August 30 filing its intention to potentially challenge plans by the now-defunct crypto exchange FTX to utilize stablecoins for repaying creditors. The SEC labeled some assets in FTX’s portfolio as “crypto asset securities,” a classification that Ripple’s top lawyer argues is both misleading and unfounded.
“The term ‘crypto asset security’ does not appear in any statute—it’s a constructed term with no legal basis,” Alderoty expressed in a social media post on September 2. He accused the SEC of attempting to mislead the judiciary by using this terminology.
Judicial and Regulatory Scrutiny
The issue was also highlighted during an August hearing in the SEC’s ongoing legal battle with another crypto exchange, Kraken. The Federal Court for the Northern District of California pointed out that the concept of “crypto asset security” is ambiguous and could lead to confusion.
In another social media update on August 29, Alderoty referenced the SEC’s historical decision regarding non-fungible tokens (NFTs) and art sales, drawing a parallel to current regulatory actions. He recounted an instance from 1976, where the SEC determined that an art gallery selling lithographs did not need to register as securities, even though the purchases were made with investment intentions.
The Art Appraisers of America, on behalf of artist William Nelson, had sought clarification on whether selling lithographs as investments required registration with the SEC. The SEC concluded that it would not enforce registration requirements, although it reserved the right to reassess should the facts or conditions change.
| Year | Entity | Issue | SEC Decision |
|---|---|---|---|
| 1976 | Art Appraisers of America | Lithographs sold as potential investments | No need for SEC registration |
| 2024 | OpenSea | NFTs sold as unregistered securities | Issued a Wells notice, indicating potential regulation |
Alderoty’s critique sheds light on the ongoing debate over how digital assets should be classified and regulated. The term “crypto asset security,” according to Ripple’s chief legal officer, exemplifies a broader issue of regulatory agencies potentially overstepping their bounds or applying outdated frameworks to emerging technologies.
The contrast between the SEC’s historical leniency with art investments and its current aggressive stance on digital assets raises questions about consistency and adaptability in regulatory practices.
As regulators and the crypto industry continue to navigate these complex waters, the clarity and fairness of legal definitions and enforcement actions remain pivotal. The outcome of these debates could significantly influence the future of cryptocurrency regulation and its integration into the broader financial system.
Featured image credit: Freepik
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