Key Takeaways
- Bitnomial legally challenges SEC’s classification of XRP as a security.
- Federal court’s previous ruling on XRP contradicts SEC’s current claims.
The US Securities and Exchange Commission (SEC) has faced a second dispute this week. On Thursday, Chicago-based digital asset derivatives exchange Bitnomial said it had brought a lawsuit against the SEC over its claims that XRP futures are “security futures” under its jurisdiction.
Bitnomial, regulated by the Commodity Futures Trading Commission (CFTC), had self-certified the XRP US Dollar Futures contract in August, following the final judgment in the SEC vs. Ripple lawsuit.
In other words, the exchange had declared that its XRP futures product meets certain regulatory standards and requirements under the commodity laws and would be able to list and trade the contract without explicit prior approval from the CFTC.
The SEC intervened in the process, contacting the exchange shortly after the filing. The agency asserted that XRP Futures are “security futures,” subject to joint SEC and CFTC jurisdiction. They warned Bitnomial that proceeding with the listing would breach federal securities laws.
The SEC also stipulated that Bitnomial must meet additional requirements, including registering as a national securities exchange, before listing XRP futures.
Bitnomial is suing the SEC to challenge its declaration that XRP is a security. They argue that their futures contracts shouldn’t be regulated by the SEC.
“Bitnomial disagrees with the SEC’s view that XRP is an investment contract and, therefore, a security, and that XRP Futures are thus security futures,” the company said in its lawsuit.
Luke Hoersten, CEO of Bitnomial, said the exchange’s clean record and the unique nature of its lawsuit against the SEC strengthened its position to push for a court ruling. He thinks the case would establish a legal precedent about how crypto derivatives like XRP futures contracts should be regulated in the US.
Bitnomial’s lawsuit comes shortly after Crypto.com, one of the world’s largest crypto exchanges, initiated legal action against the US top financial watchdog following the receipt of a Wells notice.
According to Crypto.com, the SEC has overstepped its legal authority in regulating crypto assets. The company argued that the agency’s classification of almost all crypto transactions as securities is inconsistent and unlawful.
Since last year, the crypto industry has been dealing with continuing enforcement actions and legal threats from the SEC. The list of companies under the SEC’s radar has piled up, now including Consensys, Uniswap Labs, Crypto.com and OpenSea, to name a few.
Ripple Labs, Binance, and Coinbase are three major crypto businesses that are involved in the legal battle with the SEC at this point. These cases are unlikely to settle any time soon.
On Thursday, Ripple announced it had filed a notice of appeal to challenge the SEC’s latest appeal. Both parties will reconcile in court and fight in court; the Ripple team said they are ready to fight again, and to win again.
Last July, Judge Analisa Torres of the Southern District of New York, who has overseen the SEC vs. Ripple case over the past three years, ruled that Ripple’s sales of XRP on exchanges did not constitute securities transactions, while sales to institutional investors did.
Following the court ruling, on August 7 this year, Ripple Labs was ordered to pay $125 million to settle the year-long lawsuit, hinting at the possibility of case closure if the SEC did not proceed with an appeal.
Both Ripple and the SEC declared they had scored victories, or partial victories, in the case, but the SEC kept seeking remedies from Ripple in the form of large fines, and now an appeal to challenge the court ruling.
Disagreement over the classification of XRP is ongoing and these actions are likely to prolong the legal battle until next year.
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