1 00:00:02,480 --> 00:00:05,480 Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heart podcast, 2 00:00:05,680 --> 00:00:08,559 Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for 3 00:00:08,600 --> 00:00:26,920 Speaker 1: Bloomberg News. It's Tuesday, November eighth. One of the bigger 4 00:00:26,920 --> 00:00:29,200 Speaker 1: fights in crypto right now is over the definition of 5 00:00:29,200 --> 00:00:32,599 Speaker 1: a security, what counsels the security, who gets to decide 6 00:00:32,600 --> 00:00:36,000 Speaker 1: what counts, and of course who gets to regulate once 7 00:00:36,040 --> 00:00:40,239 Speaker 1: that decision is made. This isn't just about semantics. The 8 00:00:40,320 --> 00:00:44,159 Speaker 1: answer to these questions affects trillions of dollars of assets 9 00:00:44,200 --> 00:00:49,760 Speaker 1: in the United States, including and increasingly crypto. In December, 10 00:00:50,680 --> 00:00:54,160 Speaker 1: the SEC accused Ripple Labs, the issuers of the Ripple token, 11 00:00:54,680 --> 00:01:00,000 Speaker 1: of having conducted quote an unregistered ongoing digital assets secure 12 00:01:00,120 --> 00:01:05,160 Speaker 1: he's offering, and offering that raised one point three billion dollars. Ripple, 13 00:01:05,720 --> 00:01:09,000 Speaker 1: of course, did not agree with the SEC's assessment, and 14 00:01:09,080 --> 00:01:13,200 Speaker 1: that fight is still ongoing. Most recently, Ripple asked the 15 00:01:13,200 --> 00:01:18,320 Speaker 1: courts involved to dismiss the SEC's complaint entirely, among other things, 16 00:01:18,640 --> 00:01:22,160 Speaker 1: on the basis that it's token x RP does not 17 00:01:22,360 --> 00:01:26,120 Speaker 1: count as a security. So who's right and what are 18 00:01:26,160 --> 00:01:29,559 Speaker 1: the consequences either way? Here to explain a Bloomberg reposts 19 00:01:29,560 --> 00:01:32,400 Speaker 1: as Matt Robinson and Chris Dolmac an attorney at law 20 00:01:32,560 --> 00:01:37,039 Speaker 1: Liz Davis. Hey, listeners, I'm Dust the one Drett from 21 00:01:37,040 --> 00:01:40,840 Speaker 1: the Bloomberg Crypto podcast team. The U S Security is 22 00:01:40,840 --> 00:01:44,120 Speaker 1: an exchange commission is one case that could impact another 23 00:01:44,160 --> 00:01:48,160 Speaker 1: case we mentioned in today's show involving Ripple Labs. The 24 00:01:48,280 --> 00:01:50,960 Speaker 1: U S. District Court has ruled at the company in question, 25 00:01:51,280 --> 00:01:55,920 Speaker 1: Library was selling its token as an unregistered security. In 26 00:01:55,920 --> 00:01:59,440 Speaker 1: a response on Twitter, Library said that it's not giving up, 27 00:01:59,680 --> 00:02:03,360 Speaker 1: so the ruling could be appealed. We recorded this show 28 00:02:03,480 --> 00:02:06,800 Speaker 1: before the news broke, which is why it is not mentioned. 29 00:02:07,480 --> 00:02:10,440 Speaker 1: For more information about the Library decision, go on over 30 00:02:10,440 --> 00:02:21,639 Speaker 1: to Bloomberg Law. Now back to our show, Matt, Liz, 31 00:02:21,800 --> 00:02:24,079 Speaker 1: Welcome to the show. We don't often get to talk 32 00:02:24,120 --> 00:02:27,280 Speaker 1: about Florida on the show, but today we're gonna get 33 00:02:27,280 --> 00:02:29,240 Speaker 1: to talk about Florida. And the reason that we're going 34 00:02:29,280 --> 00:02:31,679 Speaker 1: to talk about Florida is because of this dude who 35 00:02:31,840 --> 00:02:34,960 Speaker 1: was not exactly an international amount of mystery, but certainly 36 00:02:35,040 --> 00:02:39,280 Speaker 1: quite a character, a citrus farmer, a person who attempted 37 00:02:39,320 --> 00:02:43,720 Speaker 1: to run for Florida governor named William John Howe. He 38 00:02:43,840 --> 00:02:47,600 Speaker 1: died in and yet we invoke his name when we're 39 00:02:47,600 --> 00:02:51,160 Speaker 1: talking about assets in twenties twenty two, Matt, why is 40 00:02:51,200 --> 00:02:54,799 Speaker 1: this well Bill Howie. Yeah, as you said, he got 41 00:02:54,840 --> 00:02:58,919 Speaker 1: to Florida around Uh. Prior to that, he was an 42 00:02:58,919 --> 00:03:02,720 Speaker 1: interesting guy. He sold life insurance that's sixteen. He actually 43 00:03:02,800 --> 00:03:06,760 Speaker 1: developed land in Oklahoma tied to railroads. He also started 44 00:03:06,760 --> 00:03:09,919 Speaker 1: a Howie car. I think it's about sold about seven 45 00:03:10,000 --> 00:03:13,400 Speaker 1: of them, so that didn't last. And then he found 46 00:03:13,440 --> 00:03:17,400 Speaker 1: his way to Florida around the nineteen tens, started buying 47 00:03:17,480 --> 00:03:21,680 Speaker 1: up land, you know, planting citrus groves and starting building 48 00:03:21,720 --> 00:03:24,320 Speaker 1: that out. The way he was funded that, in part 49 00:03:24,400 --> 00:03:27,840 Speaker 1: was by bringing these rich investors from the North. He'd 50 00:03:27,919 --> 00:03:31,240 Speaker 1: kind of schmooze them at his hotels showing these orange grows. 51 00:03:31,600 --> 00:03:36,000 Speaker 1: He became very wealthy. His mansion is still there. Uh 52 00:03:36,000 --> 00:03:40,000 Speaker 1: if actually it's a it's a national historic place. You 53 00:03:40,000 --> 00:03:42,080 Speaker 1: can also get married there, I think, if you'd like. 54 00:03:43,080 --> 00:03:46,200 Speaker 1: But why do crypto people care about him? So so 55 00:03:46,360 --> 00:03:49,040 Speaker 1: part of the way he made his wealth was the 56 00:03:49,080 --> 00:03:52,520 Speaker 1: way he funded this orange growth business. So the idea 57 00:03:52,600 --> 00:03:54,440 Speaker 1: is that he would say, hey, I'm gonna sell you 58 00:03:54,520 --> 00:03:57,280 Speaker 1: this land. But part of that is, I'm going to 59 00:03:57,400 --> 00:04:01,000 Speaker 1: develop it for you. So you gave me money now, 60 00:04:01,560 --> 00:04:03,880 Speaker 1: and then you know, I'll develop, I'll sell it, and 61 00:04:03,880 --> 00:04:06,640 Speaker 1: then you'll get a return on that investment. Now it 62 00:04:06,640 --> 00:04:08,880 Speaker 1: starts to sound more like you know, a security something 63 00:04:08,880 --> 00:04:10,560 Speaker 1: that like you give someone money and then there's an 64 00:04:10,560 --> 00:04:12,960 Speaker 1: expectation that you're going to get some profit back. So 65 00:04:13,040 --> 00:04:15,480 Speaker 1: he did this for years, and then the SEC sued 66 00:04:15,560 --> 00:04:19,280 Speaker 1: him saying well, that's that's our universe, that's our world, Um, 67 00:04:19,320 --> 00:04:22,080 Speaker 1: you should be registered with US. Goes all the way 68 00:04:22,120 --> 00:04:26,239 Speaker 1: up to the Supreme Court, and that decision in goes 69 00:04:26,360 --> 00:04:29,760 Speaker 1: through you know, sort of these steps to say, okay, 70 00:04:29,920 --> 00:04:33,160 Speaker 1: when does something When does this exchange of money become 71 00:04:33,200 --> 00:04:39,839 Speaker 1: a security? And Liz, it's now we're two. Why are 72 00:04:40,160 --> 00:04:45,880 Speaker 1: both US regulators and cryptal lawyers of all stripes still 73 00:04:45,920 --> 00:04:50,320 Speaker 1: fighting about this today? The how we test is sort 74 00:04:50,320 --> 00:04:53,479 Speaker 1: of the standard that the SEC looks to uh in 75 00:04:53,560 --> 00:04:57,800 Speaker 1: determining whether something constitutes an investment contract um. And if 76 00:04:57,839 --> 00:05:00,640 Speaker 1: it's an investment contract, then it needs to be registered 77 00:05:00,640 --> 00:05:04,280 Speaker 1: with the SEC as a security. So generally speaking, like 78 00:05:04,320 --> 00:05:08,599 Speaker 1: all securities like stocks, bonds, investment contracts that are offered 79 00:05:08,640 --> 00:05:11,640 Speaker 1: in the United States, must be registered with the SEC, 80 00:05:11,760 --> 00:05:15,240 Speaker 1: subject to some exceptions. Um, you know, registration with the 81 00:05:15,279 --> 00:05:18,600 Speaker 1: SEC is to make sure that it's for investor protection right, 82 00:05:18,720 --> 00:05:22,040 Speaker 1: to make sure that investors are sold investments that include 83 00:05:22,120 --> 00:05:25,599 Speaker 1: all of the appropriate disclosures and are subject to regulatory 84 00:05:25,600 --> 00:05:29,160 Speaker 1: scrutiny to protect investors. So, as Matt discussed, you know, 85 00:05:29,200 --> 00:05:32,520 Speaker 1: the how we test is sort of the standard test 86 00:05:32,640 --> 00:05:36,000 Speaker 1: for determining whether and offering is an investment contract and 87 00:05:36,040 --> 00:05:39,520 Speaker 1: therefore security and that needs to be registered. And there 88 00:05:39,560 --> 00:05:42,520 Speaker 1: are just sort of parallels that the crypto industry is 89 00:05:42,520 --> 00:05:45,600 Speaker 1: looking at in terms of the initial coin offerings, how 90 00:05:45,640 --> 00:05:49,359 Speaker 1: they were being offered to the wide audience, the wide public, 91 00:05:49,560 --> 00:05:53,160 Speaker 1: you know, who are the investors, and the parallels are 92 00:05:53,160 --> 00:05:56,000 Speaker 1: being drawn from there to see whether you know, those 93 00:05:56,040 --> 00:05:58,919 Speaker 1: offerings in those initial coin offerings or for a blockchain 94 00:05:58,960 --> 00:06:03,599 Speaker 1: project fundraising that's done there constitutes an investment contract that 95 00:06:03,640 --> 00:06:07,479 Speaker 1: would been under Howie when you say like registering with 96 00:06:07,560 --> 00:06:09,960 Speaker 1: the SEC, do you just like send in the postcard 97 00:06:10,640 --> 00:06:12,320 Speaker 1: to the regulators And you're like, I'm going to do 98 00:06:12,360 --> 00:06:15,240 Speaker 1: a thing, Like what does that mean? In practice? Sure? No, 99 00:06:15,560 --> 00:06:18,200 Speaker 1: registration means you know, you have to fill up the 100 00:06:18,240 --> 00:06:21,520 Speaker 1: requisite forms there are a law of disclosures that need 101 00:06:21,560 --> 00:06:25,240 Speaker 1: to be made to the SEC. And so it is 102 00:06:25,360 --> 00:06:28,880 Speaker 1: a lengthy process, but one that the SEC, you know, 103 00:06:29,000 --> 00:06:32,640 Speaker 1: would expect folks who are offering investment contracts, whether they 104 00:06:32,640 --> 00:06:37,240 Speaker 1: are orange Grows, interest in orange Grows or cryptocurrency, for 105 00:06:37,279 --> 00:06:40,719 Speaker 1: them to comply with. Now that all sounds you could 106 00:06:40,800 --> 00:06:43,800 Speaker 1: argue reasonable. It might be work, it might be expensive, 107 00:06:43,920 --> 00:06:46,359 Speaker 1: or is it going to get paid? Why then, do 108 00:06:46,440 --> 00:06:50,880 Speaker 1: people object to having their thing be considered a security 109 00:06:51,160 --> 00:06:54,040 Speaker 1: for the purposes of the how we test? I think 110 00:06:54,080 --> 00:06:57,719 Speaker 1: because it's a fact and circumstances test. Right. When you 111 00:06:57,760 --> 00:07:00,960 Speaker 1: say facts and circumstances, what does that mean? It depends 112 00:07:01,040 --> 00:07:04,200 Speaker 1: on what the how the token was being offered, what 113 00:07:04,320 --> 00:07:07,880 Speaker 1: the situation was, you know, the context in which it 114 00:07:08,000 --> 00:07:11,520 Speaker 1: was distributed to the public and may be made available 115 00:07:11,600 --> 00:07:14,200 Speaker 1: to the public. And I think it depends on who 116 00:07:14,240 --> 00:07:17,679 Speaker 1: the promoter was or the entity was that was offering 117 00:07:17,720 --> 00:07:21,080 Speaker 1: to it, what disclosures they may what comments did they 118 00:07:21,080 --> 00:07:24,200 Speaker 1: make with respect to the problems that the how these tests? 119 00:07:24,560 --> 00:07:27,760 Speaker 1: Was there an expectation of profit that was being made 120 00:07:27,800 --> 00:07:31,320 Speaker 1: known to those potential purchasers that were going to invest 121 00:07:31,360 --> 00:07:34,520 Speaker 1: in the security? And Matt why is this such a 122 00:07:34,520 --> 00:07:38,080 Speaker 1: big deal right now? It's such a big deal because 123 00:07:38,120 --> 00:07:39,880 Speaker 1: once something is a registered there's a lot of other 124 00:07:39,880 --> 00:07:42,880 Speaker 1: things that need to take place. You're selling a security 125 00:07:42,960 --> 00:07:45,800 Speaker 1: and it trades on an exchange, that exchange needs to 126 00:07:45,800 --> 00:07:48,560 Speaker 1: be traded, right, and then if it's security, you know, 127 00:07:48,680 --> 00:07:51,520 Speaker 1: like how do you protect inside information so that your 128 00:07:51,520 --> 00:07:54,000 Speaker 1: employees don't trade against So there's just like it opens 129 00:07:54,080 --> 00:07:57,640 Speaker 1: up a whole bunch of different regulatory hoops people need 130 00:07:57,680 --> 00:07:59,840 Speaker 1: to jump through. And I think part of the reason 131 00:08:00,040 --> 00:08:01,920 Speaker 1: there's been reluctance in the industry is that the whole 132 00:08:01,920 --> 00:08:05,760 Speaker 1: ethos is to you know, we're we're against institutions where 133 00:08:05,800 --> 00:08:08,560 Speaker 1: we're trying to you know, do things ourselves and not 134 00:08:08,640 --> 00:08:12,440 Speaker 1: to have some sort of intermediary. So this this law 135 00:08:12,680 --> 00:08:15,280 Speaker 1: or this test from you know, the forties is kind 136 00:08:15,320 --> 00:08:17,760 Speaker 1: of hampered it because the way that it was written 137 00:08:17,840 --> 00:08:19,720 Speaker 1: is to sort of encompass a lot of things so 138 00:08:19,760 --> 00:08:23,840 Speaker 1: that the investing public has someone you know, overlooking things 139 00:08:23,880 --> 00:08:26,120 Speaker 1: to make sure that people are doing the things that 140 00:08:26,240 --> 00:08:29,800 Speaker 1: say they're going to do. Is there anything to the 141 00:08:29,840 --> 00:08:33,720 Speaker 1: criticism that you know, these sorts of registration steps can 142 00:08:33,880 --> 00:08:36,880 Speaker 1: hamper activity in some way, like have there been examples 143 00:08:36,920 --> 00:08:42,320 Speaker 1: in other assets of concern about the applicability of these 144 00:08:42,320 --> 00:08:46,320 Speaker 1: sorts of tests. So yeah, I mean I think if 145 00:08:46,320 --> 00:08:49,280 Speaker 1: you look, you know, I used to be at the CFTC, 146 00:08:49,840 --> 00:08:53,760 Speaker 1: and you know, foreign currency for X was sort of 147 00:08:53,800 --> 00:08:55,959 Speaker 1: the tool of choice we used to say over there 148 00:08:56,000 --> 00:08:59,080 Speaker 1: in terms of fraud, right. It was just another method 149 00:08:59,120 --> 00:09:02,560 Speaker 1: in which folks who wanted to defraud people out of 150 00:09:02,559 --> 00:09:05,920 Speaker 1: their money was being used. And you know, there was 151 00:09:05,960 --> 00:09:08,920 Speaker 1: provisions added pursuing too, don Frank that gave the CFTC 152 00:09:09,120 --> 00:09:13,480 Speaker 1: jurisdiction over certain leveraged and finance margins transactions for retail 153 00:09:13,960 --> 00:09:16,720 Speaker 1: spot for X, And so you know, that's a similar 154 00:09:16,760 --> 00:09:19,080 Speaker 1: parallel if you want to look at that. The concern 155 00:09:19,160 --> 00:09:22,439 Speaker 1: I from the regulators is that there are bad actors 156 00:09:22,480 --> 00:09:25,240 Speaker 1: that are out there, right, And I think it's fair 157 00:09:25,280 --> 00:09:27,240 Speaker 1: to say that a lot of folks in the crypto 158 00:09:27,280 --> 00:09:30,000 Speaker 1: industry recognize there are bad actors out there, and they 159 00:09:30,000 --> 00:09:32,600 Speaker 1: don't want them, you know, in the industry because it's 160 00:09:32,600 --> 00:09:35,640 Speaker 1: giving them a bad name. But unfortunately, because we're in 161 00:09:35,720 --> 00:09:38,400 Speaker 1: this period of regulation by enforcement where we don't have 162 00:09:38,440 --> 00:09:41,160 Speaker 1: regulatory clarity, you know, a lot of the laws who 163 00:09:41,160 --> 00:09:43,880 Speaker 1: are being made based upon you know, the fraud that 164 00:09:43,840 --> 00:09:46,840 Speaker 1: that's out there with crypto being used as that vehicle. 165 00:09:47,480 --> 00:09:49,840 Speaker 1: It's just as a sort of a final question obviously, 166 00:09:49,920 --> 00:09:51,720 Speaker 1: like the question of does the how we test apply 167 00:09:51,920 --> 00:09:55,280 Speaker 1: is like very large and very complicated. But are there 168 00:09:55,320 --> 00:09:59,120 Speaker 1: any other kind of similar questions that folks are encountering 169 00:09:59,360 --> 00:10:05,679 Speaker 1: as they try to fit crypto into existing regulatory models? Sure? 170 00:10:05,800 --> 00:10:08,320 Speaker 1: I mean, I think right now, because we don't have 171 00:10:09,160 --> 00:10:13,400 Speaker 1: a central you know, regulator that oversees all the financial 172 00:10:13,520 --> 00:10:16,560 Speaker 1: markets and the banking systems like some other countries do, 173 00:10:18,200 --> 00:10:20,360 Speaker 1: one of the biggest questions that we're seeing is, you know, 174 00:10:20,520 --> 00:10:23,079 Speaker 1: is it a security under the SEC's perview or is 175 00:10:23,120 --> 00:10:27,079 Speaker 1: it a commodity under the CFTCS perview. You know, hopefully 176 00:10:27,120 --> 00:10:29,160 Speaker 1: some of the legislation that's pending right now, that bi 177 00:10:29,200 --> 00:10:32,880 Speaker 1: partisan legislation that's pending might get to, you know, drawing 178 00:10:33,000 --> 00:10:35,480 Speaker 1: some lines between the two of that. But I you know, 179 00:10:35,679 --> 00:10:38,120 Speaker 1: my mind, in addition to the how we test, I 180 00:10:38,240 --> 00:10:40,840 Speaker 1: think the common question that we see all the time 181 00:10:41,000 --> 00:10:44,120 Speaker 1: is just like is this a security? Is this a commodity? 182 00:10:44,440 --> 00:10:46,600 Speaker 1: Or you know, how do I structure my projects such 183 00:10:46,679 --> 00:10:49,760 Speaker 1: that I fall within the jurisdiction of the CFTC as 184 00:10:49,800 --> 00:10:52,800 Speaker 1: opposed to the SEC or vice versa. Got it. Well, 185 00:10:53,160 --> 00:10:56,040 Speaker 1: thank you both, really appreciate you taking the time. Thank you. 186 00:10:57,440 --> 00:11:00,160 Speaker 1: Coming up, we'll be talking to bloombergerpors Crystal Mac how 187 00:11:00,240 --> 00:11:03,400 Speaker 1: one crypto firm is fighting the SEC. It's the SEC 188 00:11:03,800 --> 00:11:19,360 Speaker 1: versus Ripple. We'll be right back. We just heard from 189 00:11:19,360 --> 00:11:22,040 Speaker 1: Bloomberg Reports and Matt Robinson and from attorney at law 190 00:11:22,080 --> 00:11:24,599 Speaker 1: Elizabeth Davis, and now I'm happy to be able to 191 00:11:24,679 --> 00:11:28,840 Speaker 1: introduce Bloomberg reporter Chris Dolmetsch on how one crypto firm 192 00:11:28,960 --> 00:11:32,439 Speaker 1: is fighting the SEC. Chris, welcome to the show. Thank you. 193 00:11:32,800 --> 00:11:35,160 Speaker 1: So when we talk about this SEC case, we're talking 194 00:11:35,240 --> 00:11:39,040 Speaker 1: about the folks at Ripple Labs, who are I would 195 00:11:39,080 --> 00:11:43,720 Speaker 1: not say they're not super pleased with the SEC. What's 196 00:11:43,760 --> 00:11:47,040 Speaker 1: this fight about? So, the fights about whether they should 197 00:11:47,080 --> 00:11:51,160 Speaker 1: have registered x RP as a security right, which would 198 00:11:51,160 --> 00:11:54,000 Speaker 1: have obviously required them to put in a lot of 199 00:11:54,720 --> 00:11:59,760 Speaker 1: registration materials UM material information about their business for investors 200 00:11:59,840 --> 00:12:02,400 Speaker 1: that investors can use to decide whether to invest or 201 00:12:02,440 --> 00:12:06,679 Speaker 1: not UM. You know, it's a common obviously practice among 202 00:12:07,160 --> 00:12:10,960 Speaker 1: public companies and things like that, who are obviously come 203 00:12:11,040 --> 00:12:13,400 Speaker 1: under the purview of the SEC. But when it comes 204 00:12:13,480 --> 00:12:17,800 Speaker 1: to crypto, they kind of feel I think not just Ripple, 205 00:12:17,880 --> 00:12:19,319 Speaker 1: but I think a lot of these people. If you 206 00:12:19,360 --> 00:12:23,000 Speaker 1: look at the Bitmax prosecution, I think you understand that 207 00:12:23,160 --> 00:12:27,120 Speaker 1: they feel that they are not a traditional company that 208 00:12:27,280 --> 00:12:29,920 Speaker 1: needs to bide by those rules, that that crypto is 209 00:12:30,000 --> 00:12:33,040 Speaker 1: really a commodity that can be traded freely. It is 210 00:12:33,120 --> 00:12:36,520 Speaker 1: determined by the market price rather than UM. You know 211 00:12:36,640 --> 00:12:39,760 Speaker 1: the efforts of others. How long has this fight been 212 00:12:39,800 --> 00:12:43,280 Speaker 1: going on. It's been going on since I believe the 213 00:12:43,320 --> 00:12:46,719 Speaker 1: first the lawsuit was filed in September was one of 214 00:12:46,760 --> 00:12:50,640 Speaker 1: the first UM one of the first big cases we 215 00:12:50,720 --> 00:12:53,360 Speaker 1: saw from the SEC after the pandemic has obviously that 216 00:12:53,480 --> 00:12:56,079 Speaker 1: put a big crimp in UM. The number of federal 217 00:12:56,160 --> 00:12:58,520 Speaker 1: actions that were brought. The courthouse kind of shut down 218 00:12:58,559 --> 00:13:01,439 Speaker 1: for an entire year. UM. So I think one of 219 00:13:01,480 --> 00:13:03,280 Speaker 1: the reasons this is taken so long to get to 220 00:13:03,360 --> 00:13:06,520 Speaker 1: this point is because there's robust discovery. They've exchanged a 221 00:13:06,559 --> 00:13:09,640 Speaker 1: lot of documents. There's been fights over documents, UM. But 222 00:13:09,760 --> 00:13:12,960 Speaker 1: the pandemics certainly hurt UM the pace of this case. 223 00:13:15,200 --> 00:13:18,079 Speaker 1: Why does Ripple maintain that they are not a security like, 224 00:13:18,200 --> 00:13:20,679 Speaker 1: what is the specific argument they have been trying to make. 225 00:13:21,000 --> 00:13:24,520 Speaker 1: So they've been saying that x RARP was created but 226 00:13:25,120 --> 00:13:27,720 Speaker 1: basically given away, it was given away to the community 227 00:13:27,760 --> 00:13:31,360 Speaker 1: and therefore has no intrinsic security value. They say, what 228 00:13:31,520 --> 00:13:35,520 Speaker 1: they've received, Yes, there's been x RP sales, We've sold tokens, 229 00:13:35,600 --> 00:13:37,839 Speaker 1: we've given tokens to Ripple that have been distributed to 230 00:13:37,880 --> 00:13:40,880 Speaker 1: the public. But they say we don't have nothing. Is 231 00:13:41,120 --> 00:13:46,079 Speaker 1: there's no central person that is making money off x RP. 232 00:13:46,880 --> 00:13:50,400 Speaker 1: One of the other big things about you know this 233 00:13:50,720 --> 00:13:53,959 Speaker 1: particular cases. There have been so few other examples like this, 234 00:13:54,240 --> 00:13:58,120 Speaker 1: and so there is a lot of speculation that whatever happens, 235 00:13:58,160 --> 00:14:00,439 Speaker 1: if Ripple prevails, if the sec prevails, this could be 236 00:14:00,480 --> 00:14:05,120 Speaker 1: potentially precedent setting for a lot of crypto What would 237 00:14:05,160 --> 00:14:07,800 Speaker 1: those precedents look like? Would it established that yes, certain 238 00:14:07,840 --> 00:14:10,000 Speaker 1: types of things are or aren't a security? Just like 239 00:14:10,120 --> 00:14:12,520 Speaker 1: in non lawyer terms, what are people waiting to see? 240 00:14:13,400 --> 00:14:18,439 Speaker 1: There are a number of factors that go into whether 241 00:14:18,559 --> 00:14:21,800 Speaker 1: or not something is a security, but in this case, 242 00:14:21,960 --> 00:14:24,560 Speaker 1: and in most crypto cases, it really depends on the 243 00:14:24,640 --> 00:14:28,560 Speaker 1: individual currency itself or the crypto or whatever. The parameters 244 00:14:28,760 --> 00:14:32,040 Speaker 1: of of the individual token or the issuing or what 245 00:14:32,200 --> 00:14:35,800 Speaker 1: have you, you know, beyond traditional securities and what we've 246 00:14:35,840 --> 00:14:39,040 Speaker 1: had concepts of that. This could kind of expand that 247 00:14:39,160 --> 00:14:42,840 Speaker 1: definition a little bit and make it more so that 248 00:14:43,360 --> 00:14:47,520 Speaker 1: individual tokens could be considered securities in a broader sense. Um, 249 00:14:47,680 --> 00:14:52,280 Speaker 1: just given what the framework surrounding them. Um. It may not, like, 250 00:14:52,840 --> 00:14:55,320 Speaker 1: you know, bring the hammer down on the entire industry, 251 00:14:55,760 --> 00:14:58,480 Speaker 1: but it could severely limit what they kind of do 252 00:14:58,840 --> 00:15:02,000 Speaker 1: and increase their gulatory exposure. And it may not be 253 00:15:02,280 --> 00:15:04,560 Speaker 1: entirely parallel, but I kind of look at this like 254 00:15:04,640 --> 00:15:07,640 Speaker 1: if you look at the early days of the airlines, Um, 255 00:15:08,120 --> 00:15:09,920 Speaker 1: there was it was kind of the wild West. People 256 00:15:09,960 --> 00:15:14,160 Speaker 1: were flying. You can get on a plane and might crampy, right, 257 00:15:14,880 --> 00:15:18,440 Speaker 1: And in order to have the public have you know, 258 00:15:19,160 --> 00:15:21,640 Speaker 1: confidence in getting on an airplane and have it be 259 00:15:21,720 --> 00:15:25,480 Speaker 1: a robust industry, regulators you know, had a vested interest 260 00:15:25,520 --> 00:15:28,239 Speaker 1: in kind of making it safer and making it obviously 261 00:15:28,400 --> 00:15:31,080 Speaker 1: safer to the public. And I think that's what the 262 00:15:31,200 --> 00:15:35,000 Speaker 1: SEC wants to do here. Cryptocurrency is obviously not going away. 263 00:15:35,440 --> 00:15:37,640 Speaker 1: It is a new market and regulators are trying to 264 00:15:37,680 --> 00:15:40,240 Speaker 1: figure it out. But the Howie test was really not 265 00:15:40,560 --> 00:15:45,240 Speaker 1: used excited that much. It always came to whether something 266 00:15:45,360 --> 00:15:48,560 Speaker 1: fell under the regulation of the SEC. Now, I think 267 00:15:48,600 --> 00:15:51,520 Speaker 1: the SEC sees a little bit of and the Justice 268 00:15:51,560 --> 00:15:54,640 Speaker 1: Department sees a little bit of expanding need a need 269 00:15:54,720 --> 00:15:58,200 Speaker 1: to expand on that definition and at least get the 270 00:15:58,280 --> 00:16:01,040 Speaker 1: courts to see if it agrees with what they're saying. 271 00:16:01,560 --> 00:16:03,240 Speaker 1: And in that aspect, I think this is a big 272 00:16:03,360 --> 00:16:06,040 Speaker 1: test case for them and the crypto industry in general. 273 00:16:06,840 --> 00:16:09,080 Speaker 1: As a part of this being a big test, as 274 00:16:09,120 --> 00:16:11,360 Speaker 1: you say, for the rest of the crypto industry, you know, 275 00:16:11,400 --> 00:16:13,320 Speaker 1: we'll get a lot of emails being like coin base 276 00:16:13,400 --> 00:16:16,520 Speaker 1: as filed and amicus brief and support of Ripple. What's 277 00:16:16,520 --> 00:16:18,920 Speaker 1: an amicus brief? So amicas brief is a friend of 278 00:16:19,000 --> 00:16:22,560 Speaker 1: the court um they file basically in support of whatever 279 00:16:22,680 --> 00:16:25,240 Speaker 1: your position is. There's been a number of them with Ripple, 280 00:16:25,320 --> 00:16:28,200 Speaker 1: and in fact, the whole industry seems to be behind 281 00:16:28,320 --> 00:16:30,560 Speaker 1: Ripple on this. We had coin based recently, we had 282 00:16:31,120 --> 00:16:34,520 Speaker 1: the Blockchain Association file last week and support. I wouldn't 283 00:16:34,520 --> 00:16:37,000 Speaker 1: say it's unusual, but you have a lot of people 284 00:16:37,120 --> 00:16:40,160 Speaker 1: lining up behind Ripple, and that is unusual for a 285 00:16:40,560 --> 00:16:44,440 Speaker 1: n SECC. You don't usually see this amount of public 286 00:16:44,520 --> 00:16:48,720 Speaker 1: engagement and industry engagement. Certainly we have that with limited cases. 287 00:16:48,760 --> 00:16:51,760 Speaker 1: We had the case We're City Bank actually accidentally sent 288 00:16:51,800 --> 00:16:57,520 Speaker 1: a million dollar a billion dollars to some Revlankas absolutely bonkers. 289 00:16:57,560 --> 00:17:01,160 Speaker 1: But in terms of like how those cases are tried, 290 00:17:01,240 --> 00:17:04,159 Speaker 1: that's the parallel that I draw here, and that you 291 00:17:04,280 --> 00:17:06,280 Speaker 1: had a lot of the industry saying, hey, this could 292 00:17:06,359 --> 00:17:09,800 Speaker 1: ruin the syndicated loan industry if you force people to 293 00:17:10,359 --> 00:17:12,800 Speaker 1: do this. But in in this aspect, they have not 294 00:17:13,000 --> 00:17:16,960 Speaker 1: brought criminal charges against Ripple Um, and many people have 295 00:17:17,040 --> 00:17:19,800 Speaker 1: asked why, and that's a good indication that this may 296 00:17:19,880 --> 00:17:22,520 Speaker 1: be something that they want to test the waters to 297 00:17:22,640 --> 00:17:25,320 Speaker 1: see how far they can get on the civil side 298 00:17:25,400 --> 00:17:27,720 Speaker 1: or what you know, the law. The judges will agree 299 00:17:27,760 --> 00:17:29,600 Speaker 1: with them and maybe eventually get up to an appeals 300 00:17:29,640 --> 00:17:32,159 Speaker 1: court that could further define what's the security and to 301 00:17:32,240 --> 00:17:35,040 Speaker 1: find if really how he tested something shouldn't be applied here. 302 00:17:35,040 --> 00:17:38,160 Speaker 1: If there's something new that probably will be the end 303 00:17:38,280 --> 00:17:40,399 Speaker 1: result of this is there's gonna be need to be 304 00:17:41,160 --> 00:17:46,280 Speaker 1: um you know, laws that will define clearly what the 305 00:17:46,400 --> 00:17:48,520 Speaker 1: industry can do and what it can't do. Maybe in 306 00:17:48,560 --> 00:17:50,600 Speaker 1: a future time, we'll be talking about the ripples has 307 00:17:50,720 --> 00:17:52,959 Speaker 1: to not just the how he tought. Sure, exactly, very 308 00:17:53,000 --> 00:17:56,040 Speaker 1: good point. Thank you, Chris. You can find more of 309 00:17:56,080 --> 00:17:58,600 Speaker 1: Crystal Max for pausing on the Bloomberg terminal, on Bloomberg 310 00:17:58,640 --> 00:18:02,359 Speaker 1: dot com and on Twitter. He's at Chris Dolmac that 311 00:18:02,560 --> 00:18:05,040 Speaker 1: c H R I S D O L M E 312 00:18:05,200 --> 00:18:17,760 Speaker 1: T S H on the next episode of Bloomberg Crypto. 313 00:18:18,359 --> 00:18:21,200 Speaker 1: The people who most actively believe in Web three, the 314 00:18:21,280 --> 00:18:24,840 Speaker 1: venture capitalists, have frequently argued that it's a system designed 315 00:18:24,840 --> 00:18:29,720 Speaker 1: to benefit and reward creators, artists, musicians, writers, creatives of 316 00:18:29,800 --> 00:18:34,560 Speaker 1: all stripes. The reality is as always more complicated, especially 317 00:18:34,600 --> 00:18:41,159 Speaker 1: when it comes to royalty payments. This is Bloomberg Crypto, 318 00:18:41,440 --> 00:18:44,680 Speaker 1: a daily podcast from Bloomberg and I Heart Radio. For 319 00:18:44,800 --> 00:18:47,040 Speaker 1: more shows from I Heart Radio, visit the I Heart 320 00:18:47,119 --> 00:18:50,760 Speaker 1: Radio app, Apple Podcasts, or wherever you get your podcasts. 321 00:18:51,600 --> 00:18:54,160 Speaker 1: Send us your comments, questions, or suggestions for the show 322 00:18:54,359 --> 00:18:57,600 Speaker 1: to Crypto at Bloomberg dot net or find us on Twitter. 323 00:18:57,880 --> 00:19:02,600 Speaker 1: We're at Crypto. The supervising producer of Bloomberg Crypto is 324 00:19:02,680 --> 00:19:07,080 Speaker 1: Vicky Verglina. Our senior producer is Janet Babin. Our producers 325 00:19:07,080 --> 00:19:10,639 Speaker 1: are Mohammed Faruk and Sharon Barriro. Our associate producers are 326 00:19:10,680 --> 00:19:14,280 Speaker 1: Ty Butler and Moses on Them. Desta wonder At is 327 00:19:14,320 --> 00:19:19,640 Speaker 1: our engineer. Original music by Leo Sidron. I'm Stacy Marie 328 00:19:19,720 --> 00:19:21,159 Speaker 1: Schmal We'll be back tomorrow.