Democrat Congressman Ritchie Torres (NY-15) said in a letter to U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler that the judge's ruling in SEC vs. Ripple demonstrates that Gensler's claim that all digital assets except bitcoin are securities is false. Judge Analisa Torres of the Southern District of New York determined on July 12 that when sold to members of the public, Ripple's XRP token does not constitute an "investment contract" and therefore is not a security.
"I am writing to inquire if the SEC intends to come to terms with the folly of the Commission's crusade against crypto assets in light of the latest decision by Judge Analisa Torres of the Southern District of New York," Torres wrote in his letter, which he shared in a July 18 Twitter post. "Needless to say, regulation by enforcement had a dreadful day in court. In a landmark legal opinion, Judge Torres resoundingly rejected the regulatory overreach of the SEC, which has been indiscriminately declaring all crypto assets, except Bitcoin, to be securities. By emphasizing the need to prove the presence of an 'investment contract,' Judge Torres's reasoning represents a return to a rigorous application of the Howey test, which has been applied sloppily by the SEC."
The case began in 2020 when the SEC accused blockchain developer Ripple of offering its token XRP as an unregistered security, while Ripple argued that XRP was not a security, according to Investopedia. On July 13, the district court ruled that when sold to members of the public, XRP is not a security. The court determined that when XRP is sold to institutional investors, it does qualify as a security.
SEC Chair Gary Gensler has stated that while he believes bitcoin is a commodity, “everything else other than bitcoin is a security,” CryptoSlate reported in February. If digital assets are securities, defined as an investment contract with the expectation of profit deriving from others' efforts, the SEC would have authority to regulate digital assets and would have oversight of crypto exchanges.
"Hoping yesterday’s decision is the wake-up call that Congress needs," Ripple CEO Brad Garlinghouse said in a July 14 Twitter post. "This ruling directly undercuts the SEC’s claims that nearly all tokens are inherently securities – likely to set a positive precedent for other digital tokens in the US."
In his letter to Gensler, Rep. Torres said that Judge Torres' decision should be called the "Torres Doctrine," since Judge Torres "has brought long overdue legal clarity to the chaos of crypto regulation." He said Judge Torres has demonstrated to the SEC that digital assets "in the abstract" do not qualify as securities, so the SEC does not have the authority to regulate them unless they are offered as part of an investment contract. Rep. Torres added that Judge Torres also criticized the SEC, under Gensler's leadership, for failing to issue clear guidance to crypto industry participants, sending "mixed messages" and sometimes contradicting the Commodity Futures Trading Commission (CFTC) and itself. He called on the SEC to focus its enforcement efforts on criminal actors.
"I look forward to finding out how the SEC will reassess its regulatory assault on crypto assets in light of the Torres Doctrine," Rep. Torres said in his letter.
The SEC recently filed lawsuits against Coinbase, the largest crypto exchange in the U.S., and Binance, the largest crypto exchange in the world, accusing both companies of violating securities laws, Federal Newswire previously reported. Coinbase CEO Brian Armstrong said in a tweet after the SEC filed its lawsuit that he sees the litigation as an opportunity to gain regulatory clarity for the industry. "We're proud to represent the industry in court to finally get some clarity around crypto rules," Armstrong said. Binance responded to the SEC's lawsuit with a blog post, saying, "Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry."
