Charles Gasparino, a seasoned journalist with a reputation for breaking major stories in finance and politics, recently turned his attention to the world of cryptocurrency. In an article for the New York Post published on 22 July 2023, Gasparino dissected the recent ruling in the SEC vs Ripple Labs case, a decision that he claims has sent shockwaves through the $1.2 trillion crypto market.
Who is Charlie Gasparino?
Gasparino joined FOX Business Network (FBN) in 2010 as a Senior Correspondent. According to his bio on the Fox Business website, his work has been submitted for the Pulitzer Prize and won the New York Press Club award for best continuing coverage of the Wall Street research scandal.
What Did Judge Torres’ July 13th Ruling Say?
On 13 July 2023, Hon. Analisa Torres, a district judge at the United States District Court for the Southern District of New York, gave her ruling in the SEC vs Ripple Labs lawsuit, which was initiated in December 2020.
The U.S. Securities and Exchange Commission (SEC) had filed a lawsuit against Ripple Labs Inc. and its two senior executives, Bradley Garlinghouse and Christian A. Larsen. The SEC claimed that Ripple and its leaders unlawfully offered and sold securities, which breached Section 5 of the Securities Act of 1933. The SEC further accused Garlinghouse and Larsen of aiding and abetting these violations committed by Ripple.
Both parties had submitted their summary judgment motions to the court. After reviewing the case, the court made a decision, partially granting and partially denying the motions from both the SEC and Ripple and its executives.
According to the ruling, the court granted the SEC’s motion for summary judgment concerning the Institutional Sales but denied it for other matters. On the other hand, the court granted Ripple’s motion for summary judgment regarding the Programmatic Sales, the Other Distributions, and the sales made by Larsen and Garlinghouse. However, the court denied Ripple’s motion concerning the Institutional Sales. As for the SEC’s motion for summary judgment on the aiding and abetting claim against Larsen and Garlinghouse, it was DENIED.
In particular, with regard to Larsen’s and Garlinghouse’s XRP sales, the judge said:
“Like Ripple’s Programmatic Sales, Larsen’s and Garlinghouse’s XRP sales were programmatic sales on various digital asset exchanges through blind bid/ask transactions … Larsen and Garlinghouse did not know to whom they sold XRP, and the buyers did not know the identity of the seller. Thus, as a matter of law, the record cannot establish the third Howey prong as to these transactions. For substantially the same reasons discussed above … Because the Court determines that the record does not establish the first Howey prong as to the Other Distributions, the Court does not reach whether the second or third Howey prongs have been satisfied … Garlinghouse’s offer and sale of XRP on digital asset exchanges did not amount to offers and sales of investment contracts.“
Here is what Judge Torres said about the XRP token:
“XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract.“
With regard to secondary market sales of XRP, Judge Torres said:
“In any event, the SEC does not develop the argument that these secondary market sales were offers or sales of investment contracts, particularly where the payment of money for these XRP sales never traced back to Ripple, and the Court cannot make such a finding.“
Why Does Charlie Gasparino Not Respect Judge Torres’ Ruling?
Gasraprino says that in 2012 Ripple introduced a cross-border payment system that uses blockchain technology to facilitate faster transactions. This system, essentially a crypto version of the SWIFT system used by banks, aimed to make money transfers cheaper and more seamless via the blockchain.
Gasparino points out that when a company like Apple sells shares, whether through a private placement, an IPO, or a secondary offering of stock, they go to the SEC and file a bunch of stuff about their operations. This is known as “disclosure,” and it’s designed to help average people who buy stocks understand what the company is up to. Gasparino points out that Ripple didn’t do this when selling all that XRP, which led to the SEC suing the company and its top executives in 2020 for damages and disclosure.
In a ruling made on 13 July 2023, Manhattan federal judge Analisa Torres declared that Ripple’s XRP sales to institutional investors were in fact securities and demanded disclosure because these were so-called investment contracts. However, she ruled that Ripple’s disclosure-free sales to small investors were acceptable. According to her logic, they were not entering into investment contracts because they purchased their XRP through an intermediary like an exchange. Gasparino claims that since these “blind” sales aren’t securities, “it’s perfectly legal for Ripple to stiff the little guy on disclosure.”
Gasparino argues that this ruling has left the crypto industry in a state of uncertainty. He suggests that Congress needs to take crypto regulation out of the hands of the judiciary as soon as possible and fix this potentially transformative business before it moves to places with more rational regulations, like China.
In his view, the crypto industry will have to live with one of the more bizarre and dangerous court rulings he’s ever seen in his three decades of covering finance.
Here is a tweet Gasparino sent out yesterday that is bound to further anger members of the XRP community, whom he has been trolling ever since Judge Torres made her ruling on 13 July 2023:
Attorney John Deaton Defends Judge Torres
On 24 July 2023, John Deaton, a prominent American attorney closely monitoring and commenting on the SEC vs. Ripple Labs lawsuit since December 2020, took to Twitter to provide another compelling defense of Judge Torres’ ruling.
In a series of tweets, Deaton argued that Judge Torres’ decision regarding Ripple’s programmatic sales on exchanges was sound, pointing out that many first-time XRP purchasers bought the coin without any knowledge of Ripple. He emphasized that these buyers were unaware that Ripple sold software to banks or owned 50% of the total XRP supply. Deaton further explained that it would be difficult for these buyers to expect profit from a company they didn’t even know existed.
Deaton also took a shot at critics who predicted that the Second Circuit would overturn Judge Torres’ decision, labeling them as “sore losers.” He argued that Judge Torres was doing her job by applying the Howey factors to the facts of the case. Deaton provided an analysis of Judge Torres’ record on appeal, revealing that the Second Circuit has reviewed 29 of her decisions throughout her career as a judge, with only six of these cases being remanded. He concluded that the SEC would need more than luck to have Judge Torres’ ruling reversed and even if they were successful in their appeal, she would likely give a similar verdict on remand, this time based on the common enterprise factor of the Howey test. Deaton reiterated that the SEC does not stand a chance to reverse the judge’s ruling using the common enterprise factor, as they failed to establish this factor in the lawsuit.