Former SEC Exec Says Ripple Decision “Seems Backward” Here’s Why

John Reed Stark, a former executive at the US Securities and Exchange Commission (SEC) has criticized the court’s decision that XRP is not an investment contract.

Discrepancy in Court Ruling

The former SEC executive expressed his concerns on his LinkedIn page and suggested that the decision “seems backward” from a regulatory standpoint. Stark’s remarks have added fuel to the ongoing debate surrounding the recent court ruling from Judge Analisa Torres earlier this week.

In his analysis, he questioned the basis for considering XRP as such and challenges the arguments put forth by Ripple Labs to support its claim. 

Stark suggests that Ripple Labs’ classification is inconsistent with the traditional application of the Howey test, a well-established legal framework used to determine whether an investment qualifies as a security. Additionally, Stark raised concerns about what he perceives as a discrepancy in the level of SEC protection provided to institutional investors versus retail investors in the Ripple decision. 

According to Stark, the decision grants full SEC protection and associated remedies, such as rescission, fines, and penalties, to institutional investors. However, retail investors are seemingly not granted the same level of protection.

Stark Says Ignorance is Not an Excuse

Furthermore, Stark expresses valid worries about the ramifications of the court’s decision per XRP’s status, particularly the assumption that securities regulations do not apply when tokens are sold through exchanges. Stark argued that investor ignorance or lack of research has never served as a viable defense for securities violations. 

He challenges the notion that retail investors are inherently ignorant and highlights the fact that they may have made their investment decisions based on the same information available to institutional investors.

Stark points out that while retail investors may not have known they were directly providing capital to Ripple, they likely had access to the same information as institutional investors regarding Ripple’s intentions and the potential price movement of XRP. 

He, therefore, suggests that retail investors chose to invest in XRP because they believed in the potential for its price to increase due to Ripple’s efforts, and Ripple itself encouraged retail investors to buy the asset.

Overall, the Ripple verdict and Stark’s comments lends credence to the fact that the case is not entirely a wrap for the blockchain payments firm and the SEC may choose to proceed to appeal the decision.