Fungible cryptos in secondary sales are not securities, Ripple tells SEC

Ripple, the blockchain company behind XRP, argued that fungible cryptocurrencies are not securities when transferred in secondary transactions in a recent letter sent to the US Securities and Exchange Commission (SEC).In its May 27 letter, Ripple cited US attorney and crypto law thought leader Lewis Cohen to support its claim. In his widely cited 2022 paper, The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are Not Securities, he wrote:[T]here is no current basis in the law relating to investment contracts to classify most fungible crypto assets as securities when transferred in secondary transactions.In his paper, Cohen explained that in secondary transactions, an investment contract transaction is generally not present. He further claimed that fungible cryptocurrencies neither create nor represent the necessary cognizable legal relationship between a legal entity and the holder that is the hallmark of a security.Related: Banking groups ask SEC to drop cybersecurity incident disclosure ruleSECs new paradigmRipple also referenced SEC Commissioner Hester Peirce's May 19 new paradigm speech. She said shed been voicing her dissent with the regulators approach to crypto, adding:Having emerged from the crypto dissent years, I am glad to be able speak to you today as the head of the Commissions Crypto Task Force about a rational and coherent path forward and a new paradigm at the SEC.Peirce said that the SECs approach to crypto in recent years has evaded sound regulatory practice and must be corrected. She also said that most cryptocurrencies are not securities, adding:Most currently existing crypto assets in the market are not [securities]. My supplemental answer is that economic realities matter and non-security crypto assets may be distributed as part of an investment contract, which is a type of security.Ripples long fight with the SECThe SEC had viewed a large portion of digital assets as securities, with the regulators former chair, Gary Gensler, stating in 2023 that most of the crypto market falls under the securities bracket. This stance led to a protracted legal battle between the SEC and Ripple.The lawsuit first began at the end of 2020, when the SEC took action against Ripple and its executives, claiming that XRP sales constituted unregistered security offerings. Still, after the governments stance on crypto changed with the election of current US President Donald Trump, Ripple has mostly won the battle, with the SEC recently dropping its appeal against a ruling favorable to the company.In its recent letter to the SEC, Ripple also cited a ruling in the case noting that the court held that certain of Ripples historical institutional sales of XRP were investment contracts, while the secondary sales were not. Furthermore, the judge determined that XRP itself is not a security.Magazine: XRP win leaves Ripple and industry with no crypto legal precedent set