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Ripple Labs' Chief Legal Officer, Stuart Alderoty, has criticized the U.S. Securities and Exchange Commission (SEC) for its use of the term "crypto asset security," labeling it as a fabricated concept with no legal foundation. In a filing dated August 30, 2024, the SEC indicated that it might challenge any attempts by the defunct crypto exchange FTX to use stablecoins for repaying creditors, citing the presence of "crypto asset securities" in its portfolio.
Alderoty argues that the term "{crypto} asset security" lacks statutory support and is being employed by the SEC to mislead judges. In a September 2, 2024, post on X (formerly Twitter), he stated, "The term 'crypto asset security' is nowhere to be found in any statute—it's a fabricated term with no legal basis." He further criticized the SEC for using this terminology to create confusion in legal proceedings.
The Federal Court for the Northern District of California has also questioned the clarity of the term. In an August update on the SEC's legal dispute with crypto exchange Kraken, the court noted that the concept of "crypto asset security" is "unclear at best and confusing at worst."
Additionally, Alderoty addressed the SEC's Wells notice to NFT marketplace OpenSea, which suggests that tokens sold on the platform might be considered unregistered securities. He drew a parallel to a 1976 SEC decision involving art galleries. At that time, the SEC determined that art galleries were not required to register with the SEC, even if art buyers had investment intentions. This ruling was based on a specific case where the SEC found no need for enforcement actions against the gallery.
Alderoty highlighted that while the SEC's 1976 decision did not constitute a general legal principle, it was indicative of how similar cases might be handled. The SEC had noted that future decisions could differ based on new facts or conditions.
Overall, Alderoty's statements reflect ongoing concerns about the regulatory framework surrounding digital assets and the interpretation of securities laws in the context of emerging technologies.
