- Law firms
- Related documents
The names of the company and law firm discussed above are automatically generated based on the text of the article. This feature is being improved as we continue to test and develop in beta. We hope you receive feedback from us on the right of the page.
What you think of two newly unopened legal notes in the Securities and Exchange Commission's lawsuit against Ripple Labs Inc, according to Reuters, depends on how you were already following this closely watched test of crypto regulation.
The 2012 letters from Perkins Coie to Ripple's founders prove that the company's good faith in trying to create digital tokens without explicit guidelines on how current federal laws will apply to cryptocurrencies, according to Stuart Alderoty.
Perkins Coie apologises to Ripple executives in that if they followed their initial intention to sell tokens to investors in order to raise funds to establish a crypto network, US regulators were "extremely likely" to deem the coins to be securities.
While Ripple returned to Perkins Coie with a new launch plan in October 2012, the law firm said it believed the contemplated tokens would not be subject to federal securities laws, although Perkins Coie said there was still "some risk, although small," that the SEC would consider its crypto tokens to be securities, due to the absence of applicable case law.
Perkins Coie said, Ripple might reduce the risk by scrupulouslyavoiding the sale of its coins as an investment, and by seeking a copy of the Securities and Exchange Commission, which states that the government would not treat the coins as securities.
Alderoty told me that Ripple sought Perkins Coie's advice "because of a passionate desire to get things right, to be on the right side of the law, and to do so responsibly."
Alderoty said the blockchain business did not just ask about securities laws, but also requested recommendations on compliance with a wide range of banking, anti-money laundering, and tax laws.
The Ripple GC believes that the SEC should have looked into the Perkins Coie memos and held his company up as an example of proactive compliance.
The SEC and two Ripple executives accused of selling more than $1.3 billion in unregistered XRP between 2013 and 2020. The agency has the Perkins Coie memos as proof that the government might consider its sale of the digital tokens now known as XRP to be an unregistered securities offer, but conducted those sale despite the risk.
The Perkins Coie memos were initially denied by Ripple. Earlier this month, US District Judge Analisa Torres of Manhattan ordered the documents to be released publicly because they feature prominently in briefs from both parties. Alderoty now claims that the unsealed documents demonstrate why the company was confident that XRP was not securities when the coins began to trade.
"It's very defaming that you would have a government agency attempting to take these memos as a sword or as a blowon, rather than applauding a company that was doing the right thing, as the company's general counsel, but also a lawyer who has practiced for 35 years," the Ripple GC said.
The SEC declined to comment on the unsealed memos and on Alderoty's criticism. Dax Hansen, a Perkins Coie partner who signed both 2012 memos to Ripple, did not respond to my question immediately.
Christian Larsen, Ripple's co-founder and chair, is also a defendant in the SEC investigation. His lawyer, Martin Flumenbaum of Paul, Weiss, Rifkind, and Wharton & Garrison said the unsealing of the Perkins Coie memos showed the SEC's "difficult" portrayal of Ripple's alleged illegal sale of XRP. According to Flumenbaum, the exact facts of the Perkins Coie memo
"Getting a legal opinion is the opposite of reckless conduct," Larsen's lawyer said.
The unredacted briefs of the government, including to Larsen's and Ripple's affirmative fair notice defense, argue that the Perkins Coie memos confirm that Ripple and Larsen were forewarned that the government would position XRP as a security if the company failed to follow the narrow path described in the memos. The SEC concluded that Ripple and Larsen remained in the loop anyway.
According to the SEC, the company ignored Ripple's suggestion in the October 2012 memo that he would submit a no-action letter to the SEC, to provide further comfort that XRP are not securities under the Federal securities laws. Ripple did not submit a letter, according to him. (Larsen pointed out in his that Perkins Coie was equivocal about the strategy because the SEC could stall or refuse the request.)
The SEC also claimed that Ripple and Larsen rejected the idea of the October 2012 memo, which stated that the company would not sell the XRP to consumers. In the first memo, Perkins Coie warned that the SEC would likely consider the tokens to be securities if Ripple sold the assets to investors. In the second memo, Ripple said in its fair notice defense that starting in 2013, Ripple "quickly pivoted from distributing XRP for free to lucrative profit by offering and selling
According to the SEC, Ripple's primary business from 2013 to 2020 was selling XRP, even though the Perkins Coie notes had warned of the consequences of such sales.
The SEC's characterization of their XRP sales, as well as the government's characterization of the Perkins Coie memos, are problematic. At best, Ripple said in its to the SEC's strike motion, the memos demonstrate the undisputed state of the law governing digital assets. "They do not establish as a matter of undisputed fact that Ripple had constitutionally appropriate notice that the SEC would consider XRP as a security," Ripple said.
Torres, the judge who handled the case, ordered the Perkins Coie memos to be unsealed earlier this month because she intends to use them in her judgments on Larsen's dismissal motion and the SEC's dismissal motion. In the end, she will be the only person who counts.
Read more about this page.
Opinions expressed are opinions of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Alison Frankel has served as a columnist for Reuters since 2011. She has served as a journalist in New York for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The World's Most Valuable Coin.