{"id":117654,"date":"2021-03-19T14:22:09","date_gmt":"2021-03-19T14:22:09","guid":{"rendered":"https:\/\/precoinnews.com\/?p=117654"},"modified":"2021-03-19T14:22:09","modified_gmt":"2021-03-19T14:22:09","slug":"attorney-kevin-chen-sec-does-not-fully-understand-ripples-fair-notice-defense","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/crypto\/attorney-kevin-chen-sec-does-not-fully-understand-ripples-fair-notice-defense\/","title":{"rendered":"Attorney Kevin Chen: SEC Does Not Fully Understand Ripple&#8217;s &#8216;Fair Notice&#8217; Defense"},"content":{"rendered":"<p>Earlier this week, Kevin Chen, an attorney at Homiak Law LLC, took a closer look at the \u201cfair notice\u201d defense used by Ripple Labs in the lawsuit (over the sale of XRP tokens) brought against it by the U.S. Securities and Exchange Commission (SEC).<\/p>\n<p>Homiak Law is \u201ca full-service boutique law firm that specializes in civil litigation, private equity and venture capital transactions, business formation, and regulatory compliance.\u201d<\/p>\n<p>As for Chen, he is \u201ca\u00a0corporate\u00a0attorney\u00a0with a diverse portfolio, having served as both outside and in-house counsel for\u00a0several large\u00a0companies.\u201d\u00a0He has \u201chandled complex cases involving securities law, class actions, employment law, and breach of contract.\u201d\u00a0<\/p>\n<p>As you may remember, on 22 December 2020, the SEC\u00a0announced\u00a0that it had \u201cfiled an action against Ripple Labs\u00a0Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.\u201d\u00a0\u00a0<\/p>\n<p>On Monday (March 15), Chen took to Twitter to explain why he ffelt that the SEC might be missing one important nuance of the \u201cfair notice\u201d (or \u201cdue process\u201d) defense used by Ripple\u2019s legal team:<\/p>\n<p> He then went on to say:<\/p>\n<ul>\n<li>\u201c<em>Constitutional due process generally requires that persons\/entities must receive fair notice of conduct that is legally forbidden. This applies to criminal laws and civil laws imposing penalties.<\/em>\u201c<\/li>\n<li>\u201c<em>Defendants making a due process challenge usually argue a statute fails to give fair notice because the statute is vague.<\/em>\u201c<\/li>\n<li>Although as the SEC has pointed out courts have in the past rejected the vagueness of the Securities Act and the Howey test as a valid defense, Ripple \u201cis not (only) making this argument.\u201d<\/li>\n<li>\u201c<em>Ripple\u2019s point is that the SEC actively created confusion over XRP\u2019s status through conflicting guidance. E.g., Director Hinman made a public statement that the SEC does not consider bitcoin or ether to be securities.<\/em>\u201c<\/li>\n<li>\u201c<em>Ripple might be relying on FCC v. Fox Television Stations, Inc., a 2012 SCOTUS case.<\/em>\u201c<\/li>\n<li>\u201c<em>The SEC is arguably doing something similar to Ripple\u2014giving tacit approval of XRP and then changing course.<\/em>\u201c<\/li>\n<\/ul>\n<p>Chen closes his Twitter thread by acknowledging that \u201cRipple\u2019s argument here is a harder sell, given that the SEC has perhaps not given \u2018formal\u2019 guidance to create confusion (as the FCC did in Fox).\u201d He also points out that \u201cthis seems to be an untested argument in the crypto space.\u201d<\/p>\n<p>In an\u00a0article\u00a0for Law360 published on January 25, Joseph A. Hall, a former executive at the SEC, explained why \u201cthere\u2019s a good chance\u201d his former employer loses its lawsuit against Ripple Labs. In this article, Hall explained how inadequate the SEC\u2019s Howey test is for deciding whether a particular cryptoasset is a security:<\/p>\n<p>\u201c<em>Imagine trying to explain what an iPhone is in language your great-grandfather would have understood just after World War II. That\u2019s how easy it is to predict which digital assets are securities under the postwar Howey test.<\/em>\u201c<\/p>\n<p>He then argued that this lack of regulatory clarity significantly hurts the development of blockchain technology in the U.S.:<\/p>\n<p>\u201c<em>It\u2019s difficult to overstate the impact this uncertainty has on the development of blockchain technology in the U.S. Outside the venture capital community, corporations, major investors and banks are understandably skittish about risking serious sums of money on technologies their lawyers can\u2019t assure them comply with law \u2014 even when a technology holds the potential to improve the efficiency of managing vast amounts of data across countless industries, or the potential for frictionless, inexpensive transfers of value over smartphones and other widespread consumer tools.<\/em>\u201c<\/p>\n<p>As for the SEC\u2019s lawsuit against Ripple over the sale of XRP tokens, Hall said that after William Hinman\u2019s\u00a0speech\u00a0at the Yahoo Finance All Markets Summit in June 2018, where he said that Ethereum (ETH) \u201cmight have been born a security but later morphed into a nonsecurity\u201d, it was \u201ca fair bet that XRP would get the same treatment\u201d, i.e. \u201cmaybe there were some issues with early sales of XRP, but at this point surely XRP itself was in the clear\u201d.<\/p>\n<p>Hall argued that the SEC\u2019s decision to bring an enforcement action against Ripple Labs for ongoing sales of XRP is \u201cremarkable on several levels\u201d:<\/p>\n<ul>\n<li>\u201c<em>\u2026 the timing \u2014 the day before Clayton stepped down \u2014 suggests the possibility of a rift among the commissioners as opposed to a case everyone agreed had to be brought immediately in order to avert looming investor harm.<\/em>\u201c<\/li>\n<li>\u201c<em>\u2026 whatever one\u2019s views on the merits, before news of the SEC\u2019s intentions broke, XRP traded with a market cap in the $25 billion to $30 billion range, meaning that any precipitous action by the SEC would surely result in heavy investor losses\u2026<\/em>\u201c<\/li>\n<li>\u201c<em>Why on earth did the agency bring a case that was considerably less a slam dunk than its previous crypto enforcement actions?<\/em>\u201c<\/li>\n<\/ul>\n<p><em>Featured\u00a0Image\u00a0by\u00a0\u201cvjkombajn\u201d\u00a0via\u00a0Pixabay.com<\/em><\/p>\n<p><em>The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.<\/em><\/p>\n<p>Source: <a href=\"https:\/\/www.cryptoglobe.com\/latest\/2021\/03\/attorney-kevin-chen-sec-does-not-fully-understand-ripples-fair-notice-defense\/\" target=\"_blank\" rel=\"noopener\">Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Earlier this week, Kevin Chen, an attorney<\/p>\n","protected":false},"author":3,"featured_media":117653,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Attorney Kevin Chen: SEC Does Not Fully Understand Ripple&#039;s &#039;Fair Notice&#039; 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