Ripple Labs’ chief legal officer, Stuart Alderoty, has sharply criticized the U.S. Securities and Exchange Commission (SEC) for its repeated use of the term “crypto asset security,” arguing that the phrase is legally baseless and designed to mislead judges.
SEC’s Controversial Terminology
In a recent filing on August 30, the SEC suggested it could challenge defunct crypto exchange FTX’s plan to repay creditors using stablecoins, citing its portfolio of “crypto asset securities.” Alderoty responded on September 2 through a post on X (formerly Twitter), asserting that the term “crypto asset security” does not exist in any legal statute. He accused the SEC of trying to “deceive judges” by using fabricated terminology.
“The term ‘crypto asset security’ is nowhere to be found in any statute—it’s a fabricated term with no legal basis,” Alderoty stated. “The SEC needs to stop trying to deceive judges by using it.”
This isn’t the first time the SEC’s language has come under scrutiny. In the ongoing legal battle with crypto exchange Kraken, the Federal Court for the Northern District of California also expressed concern about the term, calling it “unclear at best and confusing at worst.”
Historical Context: SEC’s Past Rulings on Similar Issues
Alderoty further criticized the SEC’s approach in an August 29 X post, where he referenced the agency’s Wells notice to the NFT marketplace OpenSea. The notice suggested that the NFTs being sold on the platform could be considered unregistered securities. Alderoty pointed out that the SEC had taken a different stance in a similar situation over 40 years ago.
In a letter from 1976, the SEC ruled that an art gallery did not need to register as a securities dealer, even if buyers purchased art with investment motives. The gallery, acting on behalf of artist William Nelson, had sought clarification on whether selling lithographs and print drawings would violate securities laws. The SEC determined that no enforcement action was necessary, provided that the gallery did not make false declarations about the art sale.
However, the SEC’s decision was specific to that case and noted that a different conclusion could be reached if the facts or circumstances changed.
Ripple’s Ongoing Legal Battle with the SEC
Ripple and the SEC have been embroiled in a legal dispute for years, with the SEC accusing Ripple of selling unregistered securities through its XRP token. Ripple, in turn, has consistently argued that the SEC’s definitions and applications of securities laws to cryptocurrencies are overly broad and lack clear legal grounding.
Alderoty’s recent remarks underscore Ripple’s broader criticism of the SEC’s regulatory approach, highlighting the ongoing tension between the crypto industry and U.S. regulators.
