In a recent series of tweets, prominent digital asset enthusiast and lawyer Bill Morgan expressed his concerns about the Securities and Exchange Commission’s (SEC) stance on Ripple’s XRP sales, highlighting potential flaws in their argument.
Morgan argues that the SEC’s attempts to categorize all XRP tokens as investment contracts face a significant hurdle when considering a “small subset” of sales made to On-Demand Liquidity (ODL) customers.
“They just don’t fit any part of the Howey test. No investment. Even the SEC alleges they are dealt with by ODL customers immediately. No expectation of profit because they are being used as a bridge, not held. No common enterprise,” tweeted Morgan.
Morgan points out that the sales to ODL customers do not appear to meet the criteria set by the Howey test, a legal framework used to determine whether an investment qualifies as a security. According to him, these sales do not involve investment intentions since ODL customers utilize XRP as a bridge currency and promptly convert it. Furthermore, there is no common enterprise, as ODL users are simply customers utilizing a product.
This poses a significant challenge for the SEC, as considering these sales as exceptions would undermine their argument that all XRP is a security or represents an investment contract. The notion that XRP is security collapses, as all XRP tokens are fungible. Morgan further highlights two other exceptions that challenge the SEC’s argument: the giveaways of XRP to early adopters and developers and donations to charities. The SEC has not made any claims regarding these transactions, indicating that those XRP tokens were not considered investment contracts.
However, the SEC’s assertion that all XRP tokens are fungible creates a predicament. As Morgan explains, if some XRP tokens given away, gifted, or sold to ODL customers are not investment contracts or securities, then it logically follows that all other XRP tokens, which are fungible with them, cannot be considered securities either.
In a separate tweet, Morgan clarifies that the XRP he owns were some of those initially given to early adopters or gifted to charities, which the SEC does not allege as investment contracts. He firmly asserts that his XRP holdings, although fungible with other XRP tokens, are unequivocally not securities, attributing his ownership to fortunate circumstances.
The arguments put forth by Bill Morgan shed light on potential inconsistencies in the SEC’s case against Ripple’s XRP sales. These exceptions and the fungibility of XRP tokens challenge the SEC’s claim that all XRP represents an investment contract. As the legal battle between Ripple and the SEC continues, the outcome of this debate could have significant implications for the classification of digital assets in the future.
