America’s Ageing Securities Laws Need to be Amended

If there’s one thing the SEC’s enforcement actions have made clear, it’s that no one seems to agree on how to handle American securities laws as they apply to cryptocurrencies like XRP. Credentialed legal scholars and prominent lawyers, some of whom formerly represented the SEC, vehemently disagree on how how to treat the much-maligned cryptocurrency.

The same can be said about crypto and American securities laws as a whole. Judicial and regulatory bodies contort themselves into ever more masochistic shapes trying to fit this arcane legislation onto the emerging crypto space.

An excellent example of this is Carol Goforth, a Professor at the University of Arkansas School of Law, who outlined that she believes XRP falls under the category of a security in a Cointelegraph article back in March. Goforth argues that although Deaton and XRP holders are mistaken in their assertions that XRP isn’t an investment contract, she believes the enforcement action was misguided for a number of other reasons:

The reality is that the choice by the SEC to bring an enforcement action at this late date could cripple the United State’s ability to participate in a growing industry or influence the direction of its growth. In addition, it seems profoundly ironic that in an effort that is ostensibly designed to protect investors, the commission is taking an action that does indeed cause them billions of dollars in losses. Treating XRP as a security sets a precedent potentially subjecting thousands of exchanges, market-makers and others in the crypto markets to oppressively burdensome regulatory requirements not just with regard to XRP but potentially other widely-held cryptos as well.

– Carol Goforth

Is it only palatable to destroy a blockchain in its infancy — to smother it in the cradle like the only surviving son of a dead king before he has a chance to grow up and become formidable? If a firm has done something illegal, but enforcement is only wrong because the law was so difficult to navigate that legal scholars and regulators couldn’t figure it out before the blockchain grew too big — perhaps it’s the law that is the problem.

The SEC under Clayton obviously felt differently than Goforth as they decided to file suit against Ripple, alleging that the company and some of its executives had conducted an unregistered securities offering. That’s the problem with runaway laws drafted over seventy years ago — the errant whim of a regulator can lead to billions of dollars of financial losses in otherwise healthy markets.

In an interview with Fortune, former chair of the SEC and Ripple attorney Mary Jo White stated that she believed the SEC was “dead wrong legally and factually.”

White claims that this narrative is misleading and that the SEC’s struggle to develop a regulatory framework for crypto has led it to try to “fit a round peg in a square hole.” She also argues that the agency’s lawsuit is arbitrary, especially given that the SEC recently declared that Ethereum—another popular cryptocurrency developed after XRP—is not a security.

– Fortune.com

To outside observers the SEC is floundering — declaring one cryptocurrency a security while giving a pass to others, even though they arguably fit the criteria just as well. XRP, like Ethereum, is a technology that seamlessly drifts into all of these different uses (currency, commodity, contract, collectible, security). Are we to kill it because of a law drafted in 1933, a mere 14 years removed from when men regularly rode horses into battle? We had only just split the atom a mere year before the law was passed. Computers and the internet were a distant fanciful dream.

The skeletal claws of our ancestors ever clutch at our ankles, tethering us to the earth. And when the next big idea bursts into being, some greying old man will pull out a dusty old scroll and whisper the words that will end it. Having an entire industry live in catatonic fear that regulators will be able to, on a whim, drop the regulatory hammer while ignoring similar projects that they just happen to be affiliated with is going to drive innovation out of the United States because nobody wants to deal with arcane laws and their inconsistent application.

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Header photo from Leviathan by Thomas Hobbes.