Ripple CLO Slams SEC’s “Fabricated” Terminology in Crypto Regulation Cases

• Legal experts argue that the SEC misleads judges by using the term “crypto asset security.”
• Ripple CLO claims the term “crypto asset security” is fabricated and lacks legal basis.
• Judge Orrick in the Kraken case, rejected the SEC’s terminology.

Legal experts, including Ripple’s Chief Legal Officer, argue that the U.S. Securities and Exchange Commission (SEC) continuously attempts to mislead judges by using the term “crypto asset security” without legal grounding. Meanwhile, in the SEC v. Payward (Kraken) case, Judge Orrick pushed back against this tactic.

Ripple CLO Stuart Alderoty called out the SEC’s tactics on X, stating that the term “crypto asset security” is a made-up phrase with no legal foundation. Alderoty pointed out that the SEC is intentionally using the term “crypto asset security” to mislead courts into expanding securities laws to include digital assets.

He argued that the term has no legal basis in any statute. “It is a fabricated term with no legal basis,” Alderoty said. The Ripple legal expert expressed this view while responding to the SEC’s motion to challenge FTX’s move to repay debtors with stablecoin. In the legal statement presented at the bankruptcy court, the regulator used the term “crypto asset security.”

Joining the conversation, Bill Morgan, a prominent legal commentator, highlighted the ruling where Judge William Orrick, in the Kraken case, refused to be swayed by this terminology. In the ruling, Judge Orrick said: 

“Although the way the SEC labels the crypto assets at issue – as ‘crypto asset securities’ – is unclear at best and confusing at worst, I do not understand the SEC to be alleging that the individual cryptocurrency tokens in which Kraken enables transactions are themselves securities.”

Moreover, Judge Orrick clarified that “orange groves are no more securities” than crypto assets. This ruling seeks to emphasize the tokens themselves are not securities. However, the contracts and expectations surrounding their sale could potentially form an investment contract, bringing them under the purview of securities regulations.

These legal experts see Judge Orrick’s decision as a precedent for how courts can resist the SEC’s tactics and demand more precise and legally sound arguments in digital asset cases.

Earlier this week, Coinbase Chief Legal Officer Paul Grewal criticized the SEC for its ambiguous stance on FTX’s repayment method. He argues that such an undefined stance creates uncertainty in the market, which also seeks victims rather than help the crypto industry. He stated, “Why provide clarity to the market when threats and aspersions will do?”