WASHINGTON, D.C.—Stephen Hall, Legal Director and Securities Specialist, issued the following statement on the filing of an amicus brief supporting the Securities and Exchange Commission (SEC) in the high-profile crypto case, SEC v. Ripple:

“This appeal has enormous consequences for the ever-increasing number of American investors who are swept up the cryptocurrency investment craze.  The Second Circuit’s decision will determine whether those investors are protected under the securities laws against the fraud, manipulation, and hidden information that has characterized the crypto markets since their inception.  Former SEC Chair Gensler called crypto the ‘Wild Wild West,’ and the lower court’s ruling takes the sheriff out of the picture.  Countless everyday investors, enticed by earnest sales pitches but deprived of full and accurate disclosures, anti-fraud protections, and meaningful rights to sue for violations, are already suffering real financial harm—and many more will do so unless the Second Circuit reverses.

“The district court dramatically narrowed the definition of an “investment contract,” the provision that makes sure all sorts of investment schemes are covered under the securities laws.  It held that those laws don’t apply to trading on crypto exchanges or platforms, even though that’s where many retail investors acquire their tokens.  It also turned the law upside down by ruling that sophisticated institutional investors in these tokens get the protections under the securities laws but everyday retail investors—including those unable even to understand the crypto sales pitches—are left to fend for themselves. The harm is likely to extend beyond the crypto sphere since the district court’s loophole that can be exploited by issuers of all sorts of investment offerings.

“Our brief explains why the district court’s ruling was plainly wrong and should be reversed by the appellate court.    It finds no support in the securities laws; it disregards the Supreme Court’s long-standing call for a broad, flexible, and realistic application of the investment contract test; and it conflicts with almost every court case addressing the same issues.  The unfortunate reality is that the court’s decision deprives millions of retail investors of critical protections under the securities laws in an investment arena where they need it most, one that is rapidly expanding yet rife with fraud and abuse.  We urge the Second Circuit to reverse the district court’s decision on these critical issues.”

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