Here is the note I sent to Ripple employees yesterday – we remain confident after examining the SEC’s complaint today that we are on the right side of law and history.
Also – more response to today’s filing from our lawyers:
- “The SEC is completely wrong about facts and laws, and we are confident that we will ultimately prevail over a neutral fact-finder. XRP, the third largest virtual currency with billions of dollars in trading every day, is what the SEC has classified as Bitcoin and Ether, and not an investment contract. This case bears no resemblance to the original cases in which the SEC previously offered coins and extends the Howey standard beyond recognition. “Andrew Ceresney, Debevoise & Plimpton
- “This complaint is wrong for legal reasons. Other major branches of the U.S. government, including the Department of Justice and the Treasury Department’s FinCen, have already established that XRP is a currency. Transactions in XRP therefore do not fall within the scope of the Federal Securities Act. This isn’t the first time the SEC has tried to go beyond its legal authority. The courts have already corrected it and will do it again. “Michael Kellogg, Kellogg, Hansen, Todd, Figel and Frederick
In my 5+ years at Ripple, I’ve seen an incredible amount of progress, innovation, and growth. This year alone, we’ve launched new products and features that leverage XRP like the credit line and give our customers – and their customers – a better payment experience. Interestingly, after all these years, what strikes me the most are the two things that have NOT changed: 1) our vision, the Internet of Value, and 2) the fact that XRP is a currency, not a security. It’s clearly the best digital asset for payments. If you read on you will know that I believe this now more than ever.
We have always said that there is a lack of regulatory clarity for crypto in the US, and the SEC here in the US has sat back and watched for years. In fact, we’ve had the discussion with the SEC about why XRP is a currency (and not a security) for nearly three years, and yet we’ve never encountered any clarity. However, we have stated that XRP is not a security because, among other things:
- XRP is not an “investment contract”. XRP holders do not participate in Ripple’s profits, nor do they receive dividends, nor do they have voting rights or any other corporate rights. Buyers get nothing from purchasing XRP other than the asset. In fact, the vast majority of XRP owners have no affiliation or relationship with Ripple.
- Ripple (our company) has shareholders; If you want to invest in Ripple, you are not buying XRP but shares in Ripple.
- Unlike securities, XRP’s market value has not been correlated with Ripple’s activities. Instead, the price of XRP correlates with the movement of other virtual currencies.
As you all know, we have always tried to over-communicate, be as transparent as possible and explain how we feel about the long-term value of XRP. We have always worked with the regulators. We have proactively partnered globally – and even here in the US – to work with the SEC and act in good faith. Although these discussions dragged on, we were ready and willing to continue the dialogue. Unfortunately, in this lame duck status as chairman Jay Clayton, he has decided to make very grave allegations that suggest that Ripple, Chris Larsen, and I have violated the Securities Act. I’m assuming the SEC will be sharing this filing publicly in the next few days, so I wanted to give you all a lead. You should also know and expect that the SEC is likely to do whatever it takes to paint Ripple, Chris, and me in the worst possible light – quotes could be taken out of context, personal information could be shared, etc.
To be clear, this is all based on their illogical claim that, in their view, XRP is somehow the functional equivalent of a stock stake. Additionally, there is absolutely no point in saying that XRP has always been a security and that Ripple, Chris, and I should know that this makes absolutely no sense. Especially if the US Treasury Department and the US Department of Justice concluded a long time ago that XRP is a currency. Our entire AML / BSA compliance program is based on the fact that XRP is a currency! When you combine this with the fact that many other G20 governments are referring to XRP as a currency, it’s really confusing that the SEC would take this step.
Chris and I had the opportunity to settle down separately. We could do that and it would be behind us. Does not happen. That’s how confident Chris and I are that we are right. We will fight aggressively – and prove our case – through this case we will get clear rules for the industry here in the US. We are not only on the right side of the law, but also on the right side of history.
Let me be clear: Ripple, Chris and I may be the ones named on the file, but this is an attack on crypto in general. In this case, XRP is a proxy for every other “alt-coin” in the room. From there you have a snowball effect; This is not good news for market makers, exchanges like Coinbase, etc. This is a terrible precedent for any company working with a digital asset. With this claim and the SEC’s “Seal of Approval for Good Housekeeping”, which is only awarded to ETH and BTC (which directly benefits China), they create an unfair advantage for companies here in the US – and benefit dramatically from BTC and ETH. It’s just incredible that the SEC, a US regulatory agency, is selecting winners in this industry (or any industry, really) and penalizing companies here in the US.
Interestingly, Jay Clayton has been incredibly focused on showing a legacy of supporting innovation. Regardless of what the public is supposed to think, it is evident that the SEC has absolutely no obligation to promote innovation in digital assets. With this behavior, The SEC is embroiled in a widespread attack on the crypto industry. That will be Jay Clayton’s true legacy.
It’s incredibly frustrating. There is a tremendous opportunity to be a global leader and win this new technological and economic Cold War. Instead, the SEC is far from what other governments are doing, ignoring the very positive macro trend line and the incredible potential (and existing uses) of crypto. The crypto industry can and will thrive – but this will drive innovation outside of the US. It’s very interesting, but not surprising, that the lame Duck Trump administration is making consistent decisions that will disrupt the Biden administration … which will increase the focus on consumer protection and transparency. The timing is really remarkable.
As I said, I think the claims are false and contradict the basic logic. Regardless, I’ve obviously never made such a claim and take it very seriously. I hope you all understand the gravity of the situation.
What I do NOT want is for you to worry. We’ll get through this and prove our case in court. We have a phenomenal legal team and like I said, we’re on the right hand side of the law first. However, know that the legal system is slow and this is only the beginning of a long civil process.
Whatever the twists and turns, we will stand by our employees, shareholders and customers. It’s still running as usual – we need to stay focused and continue to deliver the value that hundreds of customers around the world have come to expect from Ripple. While the SEC’s decision makes our decision to move our headquarters outside of the United States even more pressing, we also look forward to working with the new Biden administration to see if we can find a rational way to go about this.
Nothing will fundamentally change our trajectory. We are very fortunate to be able to combat this and aggressively defend our company, this team, our products and – basically – the industry as a whole.