SEC Drops Legal Action Against Cumberland DRW Over Crypto Trading
In the world of cryptocurrency, the ongoing Ripple case has been a significant talking point. Here's a roundup of the latest developments and insights into this landmark case.
A Positive Relationship with the Administration
Ripple CEO Brad Garlinghouse met with President Donald Trump prior to his inauguration, indicating a positive relationship between the firm and the crypto-friendly administration. This meeting may have set the stage for the company's interactions with the U.S. Securities and Exchange Commission (SEC).
The Court's Decision and the Howey Test
The court's decision in the Ripple case was based on the Howey test, a legal standard set by the U.S. Supreme Court. This test is used to determine whether a transaction qualifies as an investment contract and, therefore, a security.
SEC's Decision on Cumberland DRW
The SEC has reached a preliminary agreement to drop its case against Cumberland DRW, the crypto trading arm of Chicago-based DRW. This decision marks another withdrawn lawsuit in the crypto sector, following the SEC's previous moves to drop legal actions against major exchanges like Coinbase and Kraken.
However, the SEC filed a lawsuit against Cumberland DRW in October 2024, accusing the division of operating as an unregistered securities dealer while handling over $2 billion in digital assets. Cumberland contended that it had registered as a dealer-broker in 2019 and had engaged in years of discussions with the SEC before being targeted with legal action.
Ripple's Single Shot and the Ongoing Case
Ripple only has one shot at getting the injunction dissolved with the trial court. The SEC sought permanent injunctive relief, disgorgement of profits, prejudgment interest, and civil penalties. The delay in resolving Ripple's case may be attributed to the injunction included in Judge Analisa Torres' ruling.
The Core Issue and Regulatory Implications
The SEC likely continues the lawsuit against Ripple Labs because the core issue—whether XRP tokens qualify as securities—remains unresolved and is pivotal for U.S. crypto regulation. Unlike other cases, Ripple's use of XRP as an institutional payment system and the complex classification dispute have made this a landmark case with significant regulatory implications.
The SEC might argue that its ongoing efforts to revise crypto regulations could make the injunction unnecessary. However, the challenge lies in the fact that the court's decision was based on the Howey test, a legal standard set by the U.S. Supreme Court, which SEC rule changes cannot override.
Insights from Legal Experts
Jeremy Hogan, a partner at Hogan & Hogan and a prominent legal figure in the cryptocurrency sector, has provided insights into the ongoing Ripple case. Hogan predicts that a decision may come by May, though appeals could be dropped as early as April. As of January 31, 2025, there have been no new developments in the ongoing Ripple case.
The SEC's Named Assets
The SEC specifically named Polygon (MATIC), Solana (SOL), Cosmos (ATOM), Algorand (ALGO), and Filecoin (FIL) as assets involved in the case. The implications of these names being included in the lawsuit are yet to be seen.
As the Ripple case continues to unfold, it serves as a bellwether for the future of cryptocurrency regulation in the U.S. Stay tuned for more updates.
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