The lawsuit between Ripple and the Securities and Exchange Commission (SEC) is starting to heat up.

Ripple Could Be Heading to a Point of No Return

Here’s a little background on the case. Less than a month ago, the financial agency filed a civil suit against Ripple, which issues the fourth-largest cryptocurrency in the world known as XRP after bitcoin, Ethereum and Tether (a stable currency). The SEC is alleging that Ripple falls into the “securities” category and did not properly register its 2013 token sale, which ultimately garnered the company as much as $700 million in funds. Thus, the agency is looking to press charges and show the world that it will not tolerate crypto companies that fail to abide by the rules.

However, Ripple’s CEO Brad Garlinghouse is claiming that Ripple has been labeled a valid currency and not a security by several leading financial agencies in both the United States and abroad. Thus, it was not required to register XRP with the agency and did not break any set regulations. He is hoping for the case to be dismissed.

The lawsuit – should it go through – could potentially spell doom for Ripple in that if the SEC wins, Ripple will likely not be able to issue any more sales or trades of XRP tokens, which means one of the world’s biggest cryptocurrencies could potentially become null and void. At one stage, Ripple was valued at approximately $150 billion, but if the SEC gets its way, this could all go to pot rather quickly.

Andrew Ceresney – a partner at Debevoise & Plimpton LLP, the law firm that’s backing Ripple against the SEC – is working hard to try and prevent this from happening. One of the big pieces of evidence he’s using to Ripple’s advantage at the time of writing is what’s known as the “Howey Test,” something that the SEC utilizes to see which assets classify as securities.

According to Ceresney, Ripple meets very few points of the Howey Test, and thus should be exempt from any securities classification. He says that XRP trades in too wide of a market, and that Ripple has thus far made no promises when it comes to selling XRP. Thus, nobody who trades the asset is being subjected to any contractual ties.

It Doesn’t Pass the Test

In a recent interview, he states:

To us, this is the SEC trying to stretch Howey beyond its breaking point.

For the SEC, however, the clincher lies in the fact that the crypto firm sees most of its power and activity coming through XRP sales. While Ripple has attempted to market remittance software, this hasn’t really gone anywhere, and the few institutions that have agreed to use it have been subsidized by Ripple. Thus, the company is in far more control than it claims to be and should be subjected to securities laws.

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