Ripple CLO Condemns SEC’s Use of “Crypto Asset Security,” Says It’s Fabricated

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Ripple CLO Stuart Alderoty, has criticized the US Securities and Exchanges Commission (SEC) for repeatedly using the phrase “crypto asset security.” The lawyer argued that such a term is fabricated and lacks a legal basis. 

This remark comes in response to the SEC’s recent filing to challenge the use of stablecoins in FTX creditor repayments. Alderoty claimed the SEC wants to deceive judges by describing cryptocurrencies using the phrase “crypto asset securities.”

Alderoty Advises SEC to Stop Tring to Use “Crypto Asset Security” to Deceive Judges

After filing for bankruptcy in November 2022, FTX has explored various methods of repaying its creditors. Some creditors have even requested in-kind repayments. 

However, the most recent plan is to pay creditor claims in cash or stablecoins based on the value of the US dollar at the time of bankruptcy. 

The SEC objected to the idea of using stablecoins for the repayments. In its August 30 filing to the bankruptcy court in Delaware, SEC lawyers warned against using USD-pegged digital assets to repay FTX creditors. 

The filing noted that although repayments with stablecoins may not be illegal, the SEC can challenge those made with US-dollar-backed crypto assets.

“The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets,” the filing read.

Ripple’s defense chief condemns the SEC’s views, saying it could be planning to deceive the judges using the term “crypto asset security.”

In an X post, Stuart Alderoty said there’s no such term as crypto asset security. He wrote that it’s not found in any statute and is fabricated without a legal basis.

The term 'crypto asset security' is nowhere to be found in any statute—it's a fabricated term with no legal basis. The SEC needs to stop trying to deceive judges by using it. pic.twitter.com/CyNbUbeoYM

— Stuart Alderoty (@s_alderoty) September 2, 2024

Further, the CLO advised the SEC to quit trying to deceive judges using a non-existent term. Meanwhile, Stuart is not the only one with an issue with the term “crypto asset security.”

In the case between crypto exchange Kraken and the SEC, a California district court also condemned the SEC’s use of the phrase. The court said the concept is unclear and confusing. 

Ripple Chief Lawyer Weighs in on SEC’s Wells Notice to Another Crypto Firm

On August 29, Alderoty reacted to the SEC’s Wells notice to OpenSea in an X post. The lawyer slammed the SEC for claiming the NFT platform might be offering unregistered securities.

Fun fact: In 1976, the SEC ruled that art galleries, even when promoting and selling to buyers that had investment motives, didn’t need to register with the SEC. https://t.co/CtQJ3mlPkh pic.twitter.com/oR8EgGpXoo

— Stuart Alderoty (@s_alderoty) August 29, 2024

He cited a similar case in 1976, in which the SEC ruled that art galleries don’t need securities registration even if the buyers have investment motives. 

The lawyer shared a letter in which the Art Appraisers of America requested clarification about whether selling art violated securities laws. The US-based gallery acted on behalf of William Nelson, an artist.

The Arts Appraisers of America wanted to avoid possible enforcement actions if the collectors were to purchase the arts as investments. 

In response, the SEC ruled that the galleries didn’t need any registration with the SEC. However, making false declarations about the art sale could attract enforcement actions. The regulator also mentioned that its decision was not a legal conclusion to the gallery’s question.