We’re taught to respect the judiciary since it must be mind-blowing to guess the legal truth.
We probably shouldn’t.
The proof is the bizarre justification provided by Supreme Court Justice Ketanji Brown Jackson to support affirmative motion. “For prime-risk black newborns,” she wrote in her opposition to the recent SCOTUS ruling, “having a black doctor greater than doubles the likelihood that the baby will live quite than die.” I’d prefer to see the “research” on this doozy.
One other judiciary gem arrived about two weeks ago, courtesy of Manhattan federal judge Analisa Torres. Securities law experts say it principally ruled that small investors don’t deserve the same protection as some dude working at a hedge fund.
Yes, you read it right.
Judge Torres obviously didn’t say those exact words, but you do not have to be a lawyer to decipher the ramifications of her strange decision that’s ruining the $1.2 trillion crypto market.
It includes the XRP digital token, used and marketed by a crypto company called Ripple, and is further proof that judges will be very thoughtless. More importantly, Congress must get crypto regulation out of the hands of the judiciary as soon as possible and fix this potentially transformative business before moving to places with more rational regulation like China.
![Analisa Torres](https://nypost.com/wp-content/uploads/sites/2/2023/07/torres_analisa_2013_03.jpg?w=1024)
To raised understand this mess, let’s return to around 2012, when Ripple (no known connection to the low cost wine people were drinking back then) unveiled their cross-border payment system that uses blockchain technology to facilitate faster transactions.
It is actually a crypto version of the SWIFT system utilized by banks to transfer money around the world. By most accounts, it’s an honest product, with the goal of making a living transfers cheaper and smoother over the blockchain.
The difficulty began around 2017 when Ripple, which also created the XRP digital coin, began selling tons of it. A part of the proceeds went to finance the Ripple platform; directors who also sold XRP.
A few of these sales concerned large investors, the so-called institutions. Company officials comparable to its CEO, Brad Garlinghouse, and its founder, Chris Larsen, in addition to the company itself, sold additional XRP to small investors, in a roundabout way but by pumping it through crypto exchanges.
The price of doing business
Traditionally, securities laws work when an organization like Apple does something like this through a personal placement or pre-IPO, initial public offering or secondary stock offering, goes to the SEC and files lots of details about its business. Depending on the kind of sale (IPOs require more information than private placements) this will be time consuming and dear, however it is a value of doing business.
Why: Stocks end up in the hands of small investors who are usually not plugged in, comparable to those who have access to large Wall Street asset management firms, institutions which have a CEO and CFO on speed dial. Average people who buy stock must give you the chance to see what the company is planning in a way they will understand. The legal term for all of that is often called “disclosure.”
Ripple didn’t do this by selling all the XRP and that’s the reason in 2020 the SEC sued the company and its top executives looking for damages and disclosure.
![Ketanji Brown Jackson](https://nypost.com/wp-content/uploads/sites/2/2023/07/2023-06-29T205439Z_1350241614_RC2F8T9P97YA_RTRMADP_3_USA-COURT-RACE-JUSTICES.jpg?w=1024)
I’ve spoken to each the SEC guys who filed the case and Ripple officials, including Garlinghouse; each present convincing arguments as to why they did what they did. In keeping with Ripple, the SEC selects the winners and losers of cryptocurrencies. Other cryptocurrencies like Ethereum did similar things and the SEC didn’t sue these guys. Plus cryptocurrencies are an animal in themselves and legally can’t be regulated like public corporations.
The SEC is anxious about Wild West issues involving digital coins – consider the infamous SBF. Besides, what’s fallacious with Ripple just coming in and filling out some paperwork about their business?
In the meantime, the Torres ruling presents a few of the most absurd legal arguments affecting securities laws and now crypto regulation. A few of Ripple’s XRP sales to those Wall Street fat cats were actually securities and are demanding disclosure because they were so-called investment contracts, he states.
It then rules that selling Ripple without disclosing information to small investors was completely kosher. In keeping with her (un)logic, since they bought XRP through an intermediary comparable to an exchange, they didn’t enter into investment agreements. These “blind” sales are usually not securities, so it’s perfectly legal for Ripple to stiffen the little guy after disclosure.
In her words, each side won, each side lost. And now you actually know the right way to move forward.
What Torres and her lawyers can have missed is that the overwhelming majority of normal stock purchases in apps or out of your broker are similarly “blind”. Nonetheless, Apple, like all public corporations, provides lots of disclosures because the law says that small investors need them greater than hedge funds.
Possibly there’s a technique to Torres’ madness. She is the Obama nominee and will want to emulate Biden Brown’s nominee Jackson and her legal reasoning to hitch SCOTUS as Sleepy Joe gets right down to bagging the court.
In the meantime, the crypto industry may have to live with considered one of the more odd and dangerous court rulings I even have ever seen in financial matters in three a long time.