Ripple CLO to SEC: Common Interest Is Not Same as Common Enterprise

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State Attorneys General Question the SEC’s ‘Regulatory Power Grab’
  • Ripple accuses SEC of stretching the Howey test in the legal battle.
  • Ripple’s Chief Legal Officer criticizes SEC’s stance on “common enterprise”.
  • Attorneys attack SEC’s argument on XRP fungibility, comparing it to an ounce of gold.

The ongoing legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC) has taken a new turn as Ripple’s lawyers have accused the SEC of trying to stretch the Howey test beyond its original intent by focusing on the adjective “common” in the phrase “common enterprise.”

Recently, Stuart Alderoty, the Chief Legal Officer at Ripple, took to Twitter to criticize the SEC’s stance on the “common enterprise,” citing the regulator’s unsuccessful argument in the Supreme Court’s “Howey” case of 1946 that investment in a “common enterprise” was not needed if there was a “community of interest.”

Alderoty noted that the SEC was wrong then and is still wrong now, asserting that common interest is not the same as a common enterprise. Notably, the SEC’s argument is that all XRP holders around the globe for the past eight years have been involved in a common enterprise. 

Additionally, the SEC had pointed to the fungibility of XRP as evidence of a common enterprise. The regulator argued that all units of XRP are fungible and rise and fall together, which is part of the common enterprise. 

According to crypto lawyer Bill Morgan, Ripple’s attorneys have attacked the above argument, pointing out that the same could be said about an ounce of gold. Morgan claimed the SEC is trying to pull a sleight of hand by surreptitiously arguing an old point that the Supreme Court had rejected in the Howey case.

Notably, the Howey test is a legal framework used to determine whether an investment is a security, and “common enterprise” is one of the prongs.

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