- To accredited investors, exempt from US securities laws or
- Through On-Demand Liquidity (ODL) agreements that prevent profit or loss.
Ripple’s terms for its ODL agreements are significant. The SEC cannot argue that ODL agreements pass the Howey test if investors do not expect a profit. The Howey Test’s third prong is the expectation of profit through the effort of others.
In April 2024, the SEC filed its remedies-related reply brief, arguing that post-complaint activity looked similar to activity that led to the July 2023 court ruling. In the filing, the SEC also stated that Ripple’s stablecoin would be an unregistered security and in breach of US securities laws.
As background, Judge Torres ruled that Ripple violated US securities laws for selling unregistered XRP to institutional investors. Judge Torres also ruled that programmatic sales of XRP do not satisfy the third prong of the Howey Test.
Considering the court rulings and the arguments in the remedies-related filings, a settlement seems unlikely.
What Do the Experts Say?
Pro-crypto lawyer Bill Morgan commented on speculation about a settlement, saying,
“This is unlikely to happen but if it does it is a compromise not a big win. It means both parties give up something.”
Former SEC Lawyer Marc Fagel had this to say about closed meetings,
“I’ve tried to patiently explain to people what closed meetings are, how they work, and why a settlement (if it existed) likely wouldn’t even be calendared at one (as presumably the sole person here who used to attend them).”
Settlement Impact
If the SEC and Ripple settle, XRP could retake the $1.00 handle. On July 13, 2023, XRP reacted to the court filing, surging from $0.4696 to $0.9327.
However, the threat of an SEC appeal against the Programmatic Sales of XRP ruling could send XRP below $0.40.