A crypto industry lobby wants the judge in a high-profile digital assets case to consider Congressional efforts to establish a new legal framework for the nascent industry before moving ahead.
The Chamber of Digital Commerce, a crypto advocacy organization, filed an amicus brief Wednesday in the Securities and Exchange Commission’s lawsuit against Ripple Labs, which is being heard before the U.S. District Court for the Southern District of New York.
In a suit that could have far-reaching impact in how crypto is regulated, the SEC has accused Ripple and its top executives of misleading buyers of its XRP token by failing to register it as a security and failing to provide sufficient disclosure. Ripple maintains that XRP is instead a commodity, and thus not subject to the SEC’s jurisdiction.
While the “Howey test” established by the U.S. Supreme Court is used to determine if a particular transaction constitutes an investment contract, “the subject of such a contract, transaction, or scheme is not necessarily, on its own, a security,” according to the brief, authored by Lilya Tessler, partner at Sidley Austin LLP in Dallas.
“This is true whether the subject of an investment contract is a physical asset, or an intangible one, such as a digital asset,” according to the brief.
The chamber represents the blockchain industry globally, boasting more than 200 startups, software companies, financial institutions, and investment firms. Its members include Ripple, as well as Deloitte, KPMG, MasterCard, Visa, BNY Mellon and Wells Fargo.
The amicus brief argues that the SEC hasn’t provided timely guidance for applying Howey “or any other legal standard to a secondary transaction in a digital asset that was previously the subject of an investment contract.”
In the absence of “express regulation, the market has had to rely on highly fact-specific district court decisions, settled administrative enforcement actions, and non-binding guidance and personal public statements made by SEC staff and commissioners, some of which expressed views that have changed with each new appointment to the commission,” according to the brief.
The Chamber argues that “as long as the underlying asset does not include financial interests, such as legal rights to debt or equity, digital assets are presumed to be commodities.” It noted that Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), drafters of a bipartisan bill to regulate digital assets, shared that viewpoint.
Considering that, the Chamber asked the court to “draw upon the principles set forth in” the Lummis-Gillibrand bill in deciding “to clarify the characterization of digital assets which are the subject of an investment contract or defer such a decision to the legislature as it continues to make progress in establishing clarifying guidelines for the proper legal classification of digital assets.”
XRP rose about 8 cents to 49 cents, or 20%, on Thursday—the biggest one-day increase since August 2021. It has rallied about 40% this week, cutting its loss for the year to about 40%. XRP traded as high as $1.96 in April 2021.
Both Ripple and the SEC last week asked Judge Analisa Torres to grant summary judgment in the case. A ruling on those motions is pending.
The SEC didn’t immediately respond to a request for comment.
The case is: SEC v Ripple Labs Inc., 20-cv-10832, US District Court, Southern District of New York (Manhattan).