We are taught to respect justice because anticipating the truth of the law must be exciting.
We probably shouldn't.
For evidence of this, see the original affirmative action issued by Supreme Court Justice Ketanji Brown Jackson. "For a high-risk Black child," he wrote in his dissent from the recent SCOTUS decision, "a Black doctor increases the odds that the child will live and not die." I'd like to see this idiot's "research".
Another piece of justice arrived about two weeks ago from Manhattan federal judge Annalisa Torres. A securities law expert says he has effectively determined that retail investors don't deserve the same protections as some people working in hedge funds.
Yes, you read right.
Of course, Judge Torres didn't say the exact words, but you don't need to be a lawyer to decipher the results of his strange ruling, which shook the $1.2 trillion cryptocurrency market.
This is the XRP digital token used and sold by a cryptocurrency company called Ripple, and further proof that judges can be very stupid. More importantly, Congress should take cryptocurrency regulation out of the hands of the judiciary as soon as possible and correct this potentially transformative activity before moving to a more rationally regulated place like China.
To better understand this mess, let's go back to 2012, when Ripple (at the time not known to be associated with the consumption of cheap wine) launched its cross-border payment system that uses blockchain technology to make transactions faster.
It's basically a cryptographic version of the SWIFT system used by banks around the world to transfer money. Overall, it's a decent product and aims to make blockchain money transfers cheaper and smoother.
The problems started around 2017 when Ripple, which also created the digital currency XRP, started selling it wholesale. Part of the proceeds will be used to finance the Ripple platform; Leaders also sell XRP.
Some of these sales are made to large so-called institutional investors. Company officials like CEO Brad Garlinghouse and founder Chris Larsen, as well as the company itself, are also selling additional XRP to retail investors, not directly but by pushing products through cryptocurrency exchanges.
This is how securities law has traditionally worked. When a company like Apple did something like this, either through a private placement or a stock sale, before an IPO, IPO, or both, it went to the SEC and filed a variety of documents about its activities. Depending on the nature of the sale (IPOs require more disclosure than private placements), this can be time consuming and costly, but comes with the cost of doing business.
Reason. stocks fall into the hands of small, aloof investors, such as the champions of big Wall Street money management firms; institutions whose CEOs and CFOs use shortcodes. Ordinary people buying stock should be able to understand what the company is doing. The legal term for all of this is "disclosure."
Ripple didn't when it sold all that XRP, so in 2020 the SEC sued the company and its top executives, seeking damages and disclosure.
I spoke to the SEC guys who filed the case as well as Ripple officials including Garlinghouse; Both make compelling arguments as to why they do what they do. According to Ripple, the SEC is picking winners and losers in cryptocurrencies. Other cryptocurrencies like Ethereum do something similar, and the SEC doesn't sue those people. Also, cryptocurrencies are a beast in themselves and cannot be regulated by law as a public company.
The SEC is concerned about things happening in the Wild West with digital coins. thinks the notorious SBF. Also, what's wrong with breaking into Ripple and documenting its activities?
Meanwhile, the Torres ruling represents some of the more unlikely legal arguments affecting securities law and now cryptocurrency regulation. Some of Ripple's XRP sales to the big cats on Wall Street are actually securities and require disclosure because they're called investment contracts, he said.
He then decided that it was perfectly legal to sell Ripple discoveries to retail investors for free. Since they buy XRP through an intermediary such as an exchange, according to (il)logic, they are not signing an investment contract. This "blind" selling is no guarantee, so Ripple is perfectly capable of convincing the little guy to disclose.
According to him, both sides won and both sides lost. And now people really know how to move forward.
What Torres and his lawyers may not have realized is that most regular stock purchases on an app or with your broker are both "blind." But Apple, like all public companies, provides a lot of information because, by law, retail investors need it more than hedge funds.
There may be a method to Torres' madness. Obama nominee, may want to emulate Biden nominee Brown Jackson and his legal rationale for joining SCOTUS when Sleepy Joe came out on his turf.
Meanwhile, the cryptocurrency industry is grappling with one of the strangest and most dangerous court decisions it has seen in three decades.