John Reed Stark, former head of the SEC’s Office of Internet Enforcement, recently shared his thoughts on the Ripple decision in a LinkedIn post. Stark’s analysis, published on July 16, 2023, provides a detailed breakdown of the court’s ruling, which he believes is momentary cause for celebration at best and ripe for appeal.

The court decision, as reported by Reuters on July 13, 2023, divided Ripple’s offering into three categories: Institutional Sales, Programmatic Sales, and Other Sales. Stark noted that the court found XRP to be a security when it was sold to institutional investors, which constituted an illegal sale of securities. These investors are entitled to termination, and Ripple must pay a fine for the violation, reportedly involving $720 million.

Stark also noted that the court rejected Ripple’s fair notice defense, stating that Ripple had adequate notice that its no-registration offering was illegal. However, the court did not address Ripple’s fair notice defense with respect to other transactions and schemes.

The court ruled that Ripple’s XRP sales on public cryptocurrency exchanges were not securities offerings under the law, because the buyers had no reasonable expectation of profit tied to Ripple’s efforts. These sales were “blind bid/ask transactions,” in which buyers “could not have known if their money payments went to Ripple or any other XRP seller.”

However, the SEC won a partial victory as Torres found that the company’s $728.9 million XRP sales to hedge funds and other sophisticated buyers amounted to unrecorded security sales. Torres ruled that Ripple’s marketing to institutional investors made it clear that the firm “was pitching a speculative value proposition for XRP” that hinged on the firm’s efforts to develop the blockchain infrastructure behind the digital asset.

Stark’s analysis suggests that Ripple’s decision is worrying on multiple fronts and is likely to be appealed. He concluded by stating that Ripple’s decision appears contradictory, inconsistent with SEC case law, and unprecedented in this context.

Stark’s post provides a detailed and insightful analysis of the court’s ruling, shedding light on the complexities of the case and the potential implications for Ripple and the broader cryptocurrency industry. His expertise and experience in the field of internet application make his analysis a valuable resource for anyone interested in the evolving regulatory landscape of cryptocurrencies. As the industry continues to grow and mature, Stark’s insights will no doubt continue to provide valuable context and insight into these complex issues.