Ripple CLO Stuart Alderoty Highlights 6 Vital Securities Principles the SEC Must Adhere to From 2025 Onward

The legal luminary with almost four decades of legal expertise behind him pointed out six core areas where the SEC wouldn't need to drag litigation going forward.

Ripple’s Chief Legal Officer has outlined some key securities principles that the US Securities and Exchange Commission must follow from 2025 onwards.

Highlighting six core areas where the SEC will have no need to drag litigation going forward, Stuart Alderoty’s statement comes on the heels of several crypto exchange tokens being cleared of the securities tag by courts despite the SEC’s insistence on the contrary.

In a recent statement, Alderoty outlined some key principles that the SEC must follow from 2025 onwards. The principles aim to clarify the SEC’s jurisdiction over digital assets and highlight the limits of the regulator’s authority.

“SEC oversight extends only to securities transactions.”

This principle underscores the SEC’s limited jurisdiction over transactions involving digital assets. The agency’s mandate is confined to regulating securities transactions, excluding non-securities transactions from its purview.

However, a key point of contention has been the lack of clear guidelines on which tokens are securities and which transactions constitute securities transactions. This ambiguity has led to the SEC overstepping its boundaries and attempting to regulate non-securities transactions.

One notable example is the SEC’s case against Ripple, in which the Commission alleged that both Ripple’s institutional sales of XRP tokens and their retail sales through exchanges constituted securities sales. Judge Analisa Torres of the US District Court for the Southern District of New York eventually ruled that XRP sales to retail investors via crypto exchanges did not constitute a securities violation.

In his statement, Alderoty used an analogy with a gold bar to illustrate one of the Howey Test criteria for determining securities. He explained that selling a gold bar with a contractual right, title, or interest in his gold mine would likely be considered a security transaction.

However, he went on to say that the SEC would not be able to regulate the sale of that same gold bar if there were no post-sale rights or obligations, as this would simply be an asset sale and not a transaction within the regulator’s jurisdiction.

Highlighting another important distinction, Alderoty stated that a token is never inherently a security, even though it can be used in a securities transaction. This point is further illustrated by Ripple’s partial win over the SEC, which saw Judge Torres clear XRP of the Howey Test’s securities status despite its institutional sales being securities offerings.

Moreover, Alderoty refuted the idea that a token can “evolve” from a security to a non-security, calling it a “made-up fallacy with no footing in the law.”

In a separate development, a US District of Columbia judge ruled that a token that was once part of an investment contract can outgrow the “security” label as it circulates through commerce, gets sold by private investors in exchanges, and increases in utility. This ruling favored Binance in a case brought by the SEC against Binance for operating an unapproved securities exchange by offering 12 assets on the platform, including its native BNB token.

In her decision, the judge excluded BNB from the securities mold, stating that assets that were once part of an investment contract must not indefinitely retain the “security” tag.

Finally, Alderoty criticized the SEC for its voluntary and unlawful expansion of its jurisdiction “based on a self-serving view of who it thinks is more ‘deserving’ of disclosures.”

This arbitrary exercise of authority was evident in the recent Gensler regime, which saw the SEC Chair carry out a high-profile campaign against crypto and digital assets. In contrast to his predecessor Jay Clayton, who largely steered clear of the crypto industry, Gensler's approach has seen him attempt to shoehorn digital assets into existing securities law frameworks.

Fortunately for the crypto industry, Gensler will step down as SEC Chair in less than 18 days, making way for a potentially more favorable policy atmosphere for digital assets.