How Ripple's Win Reshapes Crypto with Paul Grewal & Mike Selig

We're going into the details with some crypto legal minds and experts. The news is this the sales of XRP, the asset, do not constitute an offer of investment contracts. This is the words of a judge. Effectively, what this means is a U.S. court has ruled that XRP is not a security. The question, of course, is if XRP is not a security, how can all of the other tokens that the SEC alleges are securities be securities, including MADC, including Solana, including Cardano, including ETH?

We're going to get into the details of that ruling today. On this news, of course, some of the crypto uh market has been up, XRP has been up, the uh Coinbase token has been up as well. I shouldn't say token, I should say stock. That one's a stock. And uh I promised yesterday in the roll up that we would walk through the details with some legal minds, some folks where we can get into a deeper analysis than I can give you. So here we are joined today with Paul Greywell and Mike Sellig. They are both experts in this field, and um I think we'll provide some insight into the implications of this and the decision itself.

So, guys, we're gonna get right to the episode. But before we do, I want to thank the sponsors that made this possible, including our number one recommended crypto exchange, Kraken. Go create an account. XRP is not a security. That seemed to be the ruling of a U.S. court. Just yesterday, it happened. We want to get some legal minds in on this conversation. We've got two of the best in our industry. Mike Selig joins us. He is a counsel for digital asset department at Wilkie Farr and Gallagher, which is a law firm based in New York City. Mike's been on Bankless before. Last time we talked, I think we were talking about the SEC. It's uh the year of the SC of the SEC, I think, Mike. So it's great to have you back.

Good to be here.

We also have Paul Greywell, who's no stranger to Bankless. He's the chief legal officer at Coinbase. And I think Paul was last on the show to discuss uh the Wells notice that Coinbase received from the SEC. And now this time we get to talk about uh maybe happier news, which is this recent ruling. Paul, it's great to have you back.

It's it's great to be back. Thanks, Ryan.

All right. Uh want to go through this in two parts. First, let's talk about the decision, and your legal brains will be able to pick this apart far better than mine. So I want to spend some detail there. And then once we do that, once we establish that, uh we can talk about the implications. But before we do, I want to just spend a moment to maybe celebrate what just happened. Uh I, for one, am very excited. And I saw your tweet here, Paul. Most days I love being a lawyer. Today is one of them.

Uh you were referring, of course, to yesterday, the date you got this news. Um I think all of crypto was really celebrating in a celebratory uh mindset. And I I wanna ask why. Why was yesterday an important day for you, Paul?

Well, it's important because Judge Torres in her decision made several rulings that we think are

um transformational,

um, not just for Coinbase and our particular issues with the SEC, but for the industry as a whole. But I actually think that

the substance of the ruling was only part of the exuberance, Ryan.

You know, for a long time, a lot of us in crypto had frankly been get getting the crap kicked out of us, seemingly, on a regular basis.

Part of that was from the SEC, and we're going to talk a lot more about that in a minute.

But part of it was just the fact that our industry saw just one blow up after another and one scandal after another that really tarred a lot of innocent, hardworking, creative, good people

with negativity and words in ways that simply wasn't fair. So I think for

many of us, if I can speak on behalf of more than just myself for a minute.

The ruling, I think, was

a sense for the first time in a long time that we were being heard,

that someone smart and hardworking and fair and frankly with no skin in the game was looking at these issues so important to so many of us

and saying,

Are you serious, SEC? Is this really the basis upon which you want to regulate such an important uh industry in the United States? I think that was as much of it as anything else.

I I will definitely agree with you. I I I felt like um it's been a theme of 2023. Um regulatory overreach has felt like a theme, this regulation by enforcement. And it felt good to have some checks and balances at play. And that's after all, is the the idea of the court system. That's where they come into play as a check and balance against um the legislative and executive branch. I think we we saw that today. Um, Mike, what were your thoughts? When first of all, were you surprised at this ruling in general? Like I it was not on my radar at all. I didn't even know that um this ruling was was imminent. Were you surprised at the timing of it and uh the result?

So we were all waiting uh for this ruling to drop, and and we had no idea when, but we expected it uh any day and and you know it came when it came. But I think we've built up over all these years uh the this notion that the SEC is interpreting the Howie tests broader and broader with every case. And they've brought many enforcement actions over the years. Many of these have settled, and there have been a handful of cases where the SEC has been tasked with going to court. Um

The Wahee case, uh, the Coinbase case now, uh, Ripple, Telegram, Kick, uh, library, a number of these cases. And the SEC has kind of gotten its way in some of these.

We've not had the monumental ruling where we had a you know court say that the there is no security involved whatsoever. But we've kind of gotten these breadcrumbs in every case where the courts started to distinguish this idea that there's an investment contract and this crypto asset that kind of sits apart from that. And it may be sold in ways that that implicate the securities laws, but it's not necessarily a security in every case. It's not the security itself. And so this was really a surprising uh win, really, for the Ripple team and for the industry more broadly. Uh, I don't think any of us were necessarily expecting that the court would go so far as to say, look, we're separating the crypto asset from the investment contract very clearly here. And there are certain instances when you can sell the crypto asset and it's not going to implicate the securities laws.

So let's get to the what's happened. That was our uh celebratory round and Mike, you started talking about this. I want to bring Paul in on this too. This is a tweet from Bill Hughes that I think sums it up, but I'm wondering if you could paint in the shades of detail here. Uh crypto lawyer Bill Hughes says the SEC versus Ripple in brief. Ripple putting XRP on exchanges for trading and funding their operation with those sales. The court form uh found that this is not an investment contract and therefore not a security. XRP on exchanges, not a security. Ripple paying people an XRP is not an investment contract and therefore not a security. So when you pay an XRP, it's not a security. XRP itself is not a security in and of itself, even when offered through a securities transaction. All right. That that I think is are the monumental pieces of this uh ruling. Um the the last part though is Ripple selling XRP directly pursuant to contracts was an investment contract and thus a security. Ripple had fair notice that doing this without registration was illegal. So I think the idea here is that at some point when Ripple was selling XRP to investors, these maybe institutions, uh, it was a security. And then um XRP became not a security at some other point in the process. This piece of the of kind of the court ruling seems somewhat vague to me, but we've got sort of the the start case where XRP starts as a security, and we've got the end piece where now it's not security according to the the court ruling. Paul, I'm wondering if you could kind of make sense of this for us. So uh what actually happened here?

Yeah, Ryan. Well, just to be very clear, what actually happened here?

As a result of this ruling, XRP, the token, the asset,

was never a security.

It was never a security when it was a part of a broader investment contract and security transaction. That's what was going on with the institutional investors.

It was never a security when it was part of trading on exchanges. And in fact, the freighting on exchanges was deemed not to be a security transaction as well. It wasn't a security when it was distributed to employees and on and on the court went. So

I think part of the FUD here, part of the uncertainty, doubt, and conf and fear that the SEC has sown is that through its

theory, it has suggested that

assets themselves can be securities independent of the context in which they are transacted.

That's why I think today.

So many people are celebrating that we finally have recognition that whatever else may be going on with assets from time to time, these assets themselves are not securities.

Okay, all right. So I think I got that that part uh wrong. And your your precision of language, that's why you guys are lawyers and I'm not. I'm just a you know lowly podcaster. Um your precision of language really helped me there, Paul. So you're saying uh XRP was never a security, but there was this investment contract for XRP, and that investment contract, a separate kind of thing, a separate asset, I suppose, or a separate agreement.

The judge ruled that that investment contract was a security, but XRP was never a security throughout this entire process. Is that correct?

100% correct. And

the way we know this, the reason we know this is Judge Torres understood the law. The law has been clear for a very long time. You got to look at these things transaction by transaction. That's one of the reasons why Judge Torres

distinguished

The transactions involving institutions on the one hand, and the transactions that took place on the exchanges on the other. And that distinction is everything. And the SEC's refusal for years now to acknowledge that distinction is what created so much uncertainty for a lot of us. Judge Torres said enough. Judge Torres said, let me lay this all out so that everybody can understand. And she squarely ruled in favor of

exchange trading in the XRP case not being a security.

Okay. Now I see. Thanks. So thank you for that clarity. So can we be clear on what XRP the asset actually is? So if it's not a security, did Judge Torres

designate what it actually is as an asset

He didn't. The burden was on the SEC as the plaintiff in the case

proved what it was alleging in its complaint, which was that the XRP asset itself was a security.

And that's what the court considered,

deliberated on, and ultimately rejected.

He didn't go so far, and I think this is a reflection of the care with which she wrote her opinion as to as to.

Say what the asset might be in terms of other regulatory frameworks. For example, a commodity, a virtual currency, or something else altogether.

The only thing that mattered in order to evaluate the SEC's claims was is this a security or isn't it? And she plainly said it's not.

and why. What were her reasons? What were her arguments for this

for XRP not being a security?

Because the law has been very clear that

what is at issue when the SEC charges violations of the securities laws is whether the transactions themselves constitute securities transactions that trigger the authority and jurisdiction of the SEC.

And so because you can have investment contracts or any other type of security transaction that involves all sorts of things that might be securities on the one hand, you know, Apple stock or debt instruments, those sorts of things.

Or on the other, pure commodities. You can have securities transactions that involve transactions such as orange groves or pork bellies or other things that are planning on securities.

In a certain way, Ryan, the underlying asset is.