Ripple CLO Stuart Alderoty tells SEC that highly fungible crypto assets in secondary markets aren’t securities, urging clearer rules.
Stuart Alderoty, Ripple’s Chief Legal Officer (CLO), has recently submitted a letter to the U.S. Securities and Exchange Commission (SEC) that requests clarification and differentiation between crypto tokens and investment contracts. Alderoty contended that most fungible crypto assets would not qualify as securities under the current laws while speaking to the SEC’s Crypto Task Force, which Commissioner Hester Peirce leads.
Ripple CLO Requests Regulatory Clarity Regarding Cryptocurrencies
In his letter to the Securities and Exchange Commission, Alderoty referenced Lewis Cohen’s paper “The Ineluctable Modality of Securities Law” to assert that an investment contract necessitates a legal relationship between a consumer and a seller. Nevertheless, he stated that this is not essential in the secondary market transactions of the crypto market.
The Ripple CLO also cited the ruling by Judge Torres in the ongoing SEC vs. Ripple lawsuit, in which XRP was not classified as a security in secondary sales even though the earlier institutional sales met the criteria for investment contracts.
Alderoty acknowledged the regulatory voids in the system but maintained that Congress, rather than the SEC, should resolve them. He composed the following:
“Absent delegated authority, new legal standards must be established by lawmakers. SEC guidance that adheres faithfully to existing law—something that eluded the prior administration—would go a long way toward reducing market confusion”.
What is the process by which cryptocurrency tokens will be distinguished from investment contracts?
Stuart Alderoty has suggested a framework to distinguish tokens from investment contracts. The Ripple CLO further stated that the token should be considered independent of the contract if issuers fulfill material promises made during the initial sale and secondary holders lack enforceable rights against them.
“This approach preserves accountability for bad actors without imposing ongoing or indeterminate obligations on downstream market participants,” he added.
Alderoty emphasized the necessity of a regulatory framework that promotes innovation and protects investors, urging Congress to take action. The Blockchain Association also encouraged the SEC to eliminate equity-style regulations for the crypto market earlier this month.
The Crypto Task Force, which was established in March of this year, is under the leadership of SEC Commissioner Hester Peirce. This unit aims to bridge the gap between the traditional and crypto markets, thereby enhancing the regulatory clarity of the entire sector. BlackRock, the world’s largest asset manager, has recently engaged in discussions with the Crypto Task Force. The company has a significant presence in the digital assets market.
