Lawrence Damilola
Ripple Labs’ chief legal officer Stuart Alderoty has criticized the United States Securities and Exchange Commission (SEC) for repeatedly using the term “crypto asset security,” stating that it lacks a legal basis.
He accused the SEC of attempting to mislead judges by introducing the phrase into legal arguments.
Alderoty’s comments followed an SEC filing last Friday, where the agency warned that it might oppose any plan by the bankrupt crypto exchange FTX to use stablecoins to repay its creditors. The SEC’s filing mentioned that FTX’s portfolio includes “crypto asset securities.” Alderoty views this as part of the SEC’s effort to incorporate legally unsupported language into its filings.
The term 'crypto asset security' is nowhere to be found in any statute—it's a fabricated term with no legal basis. The SEC needs to stop trying to deceive judges by using it. pic.twitter.com/CyNbUbeoYM
— Stuart Alderoty (@s_alderoty) September 2, 2024
Alderoty’s criticism comes as the SEC faces challenges over its regulatory approach to digital assets. He argues that the SEC uses terms like “crypto asset security” to create a perception that does not align with existing legal definitions.
“There is no such thing as a ‘crypto asset security’ under the law, and the SEC knows it,” said Alderoty. He further contended that this strategy could be seen as an attempt to guide legal interpretations to benefit the SEC’s stance on cryptocurrency regulation.
The term “crypto asset security” has faced scrutiny in other legal contexts. In a case involving the cryptocurrency exchange Kraken, the Federal Court for the Northern District of California raised concerns about the SEC’s use of this terminology. The court described the concept as “unclear at best and confusing at worst.”
Alderoty has also pointed to the SEC’s recent enforcement actions in other cases to argue that the agency’s approach is inconsistent. He referred to an August 29 post on social media platform X, criticizing the regulator’s Wells notice to the NFT marketplace OpenSea. The notice suggested that some of the tokens sold on the platform might qualify as unregistered securities.
“The SEC is taking a position that is not supported by law,” Alderoty stated, arguing that these actions demonstrate a regulatory approach that lacks consistency and clear guidance.
Fun fact: In 1976, the SEC ruled that art galleries, even when promoting and selling to buyers that had investment motives, didn’t need to register with the SEC. https://t.co/CtQJ3mlPkh pic.twitter.com/oR8EgGpXoo
— Stuart Alderoty (@s_alderoty) August 29, 2024
To illustrate his point, Alderoty referenced a historical SEC decision involving art sales. In the past, the Art Appraisers of America, representing artist William Nelson, sought clarification from the SEC on whether selling lithographs and prints could be considered selling unregistered securities. The concern was that collectors might buy the art as an investment, hoping to sell it later at a higher price.
At the time, the SEC decided not to pursue enforcement action, saying that registration was not required. However, the commission noted that this decision was specific to the facts of that case and could change under different circumstances.
Alderoty used this example to argue that the SEC’s regulatory approach varies based on each case’s context and specifics. He suggests that its current stance on crypto assets may similarly lack a firm legal foundation and is an attempt at extending its regulatory reach without clear backing.
“Over 40 years ago, the SEC recognized that the sale of art didn’t require registration, even if someone bought the art as an investment,” said Alderoty.
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Lawrence does not hold any crypto asset. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
