Valhil Capital

The @cryptojusticeco is an unincorporated, private membership association, organized to advocate, educate, and provide support to its members on issues related to cryptocurrency and digital asset law, policy, and justice through, among other activities, independent oversight of government and corporate wrongdoing in the digital asset sector.

10/10 All industry participants, including the @SECGov, knew in advance that the action was going to materially harm innocent third party XRP holders, and raise significant issues around national security and constitutional rights of due process, equal treatment under the law etc. But, they did it anyway. Why? @POTUS @DavidSacks @SECGov The full Grundfest Letter may be found here (Credit @CryptoLawUS): crypto-law.us/wp-content/upl…

9/10 Conclusion: Professor Grundfest’s letter frames the @SECGov's contemplated enforcement action against @Ripple as a decision with far-reaching consequences beyond securities law, urging caution and delay. His arguments about prospective damages to XRP holders highlight the potential for massive, immediate economic harm to innocent parties. The national security concerns link the action to broader geopolitical risks, while the unequal treatment critique questions the SEC’s consistency and fairness in regulating cryptocurrencies like XRP versus Ether. These issues collectively underscore his call for a more deliberate, coordinated approach under new leadership.

8/10 Additional Notable Themes: A. Procedural and Timing Concerns: Grundfest strongly advocates deferring the enforcement decision to a new SEC Chair and Administration, citing the impending leadership transitions and the lack of a pressing need for immediate action. He views the timing—driven by outgoing staff—as problematic and unprecedented. B. Innovation and Market Implications: Grundfest cautions that the action could reinforce perceptions of the SEC as anti-innovation, driving fintech development offshore and weakening U.S. competitiveness in emerging financial technologies. C. Rulemaking vs. Litigation: Grundfest suggests that rulemaking, rather than litigation, would better address the complex policy issues involved, offering a nuanced regulatory framework and avoiding the blunt, backward-looking nature of a court decision.

7/10 Competitive Imbalance: He warns that imposing securities law obligations on XRP but not Ether creates a competitive imbalance that cannot be justified by fair enforcement principles. If Ether trades freely, XRP should as well; otherwise, both should face equivalent restrictions.

6/10 Unequal Treatment Under the Law Among XRP and Other Cryptocurrencies Disparity with Ether: Grundfest argues that the contemplated action raises "securities law equivalent of ‘equal protection’ concerns." He points out that the SEC staff has not articulated a material distinction between Ether and XRP relevant to securities laws, yet XRP faces enforcement while Ether does not. This disparity, he contends, undermines the SEC’s tradition of fairness in treating similar instruments similarly.

5/10 Inter-Agency Coordination: Grundfest notes in his letter that the Director of National Intelligence reportedly offered the SEC Chairman a briefing on the national security threat posed by the dominance of Bitcoin and Ether without effective U.S.-based competition. This underscores the need for coordinated decision-making with an incoming Administration to address these broader implications. Note: In November 2020, the Director of National Intelligence actual wrote a letter to Chairman Jay Clayton at the @SECGov calling for an investigation into Chinese connections with BTC and Ethereum. modernconsensus.com/politics/u-s-i… Instead, the SEC sues Ripple?!?!

4/10 National Security Issues Concerns Over Foreign Dominance: Grundfest highlights national security implications, referencing correspondence from the U.S. Senate to the Director of National Intelligence and the National Security Advisor about Chinese control over Bitcoin and Ether. He suggests that an enforcement action against XRP could exacerbate this by stifling U.S.-based cryptographic innovation, leaving the field open to foreign competitors. THIS OCCURRED. Chinese miners/mining hardware substantially dominates global BTC production. China substantially took over Ethereum. ETHGate

3/10 Scale of Losses/Damages: In his letter, Grundfest emphasizes the scale of potential damage, citing XRP’s aggregate market capitalization of approximately $23.8 billion as of December 16, 2020, making it the third-largest cryptocurrency globally. A withdrawal of intermediaries could lead to "billions of dollars of losses" for innocent third-party holders. Unprecedented Regulatory attack on Industry: Grundfest argues that such an outcome—multi-billion-dollar losses to innocent parties from the announcement of an enforcement action absent fraud—would be unprecedented in SEC history, raising significant public policy concerns that warrant consideration by a new Administration. $15 billion was erased from XRP market cap - DAY 1 after lawsuit was filed by @SECGov

2/10 Prospective Damages to XRP Holders Impact of Enforcement Action: Grundfest warns that merely initiating the enforcement proceeding, even without allegations of fraud, misrepresentation, or omission, would cause significant harm to innocent XRP holders. He notes that intermediaries would likely cease transacting in XRP due to legal risks, reducing liquidity and causing XRP’s value to decline. THIS HAPPENED.

1/10 Professor Joseph A. Grundfest’s letter to the @SECGov Commissioners, dated December 17, 2020 - 5 days prior to the lawsuit, raises several critical themes and issues regarding the contemplated enforcement action against Ripple Labs concerning transactions in XRP. IMPORTANT TAKE-AWAY: @SECGov Leadership was warned, in advance, that what they were planning to do was inappropriate . . . They KNOWINGLY took adverse action anyway. Key Themes and Issues . . . a 🧵🪡

7/7 Hindsight shows the absurdity and damaging nature of the SEC's actions. The lawsuit, filed Dec 2020, tanked XRP’s value and sparked years of uncertainty. Giancarlo’s analysis—backed by decades of regulatory experience—predicted a better path the SEC dismissed. Today, as crypto clarity emerges, this article stands as a beacon of reason against the SEC’s overreach. Regulation should foster growth, not stifle it. The full article may be found here: iflr.com/article/2a6373… @POTUS @DavidSacks @PaulAtkinsETH @EMPOWR_us @Fruition_Films

6/7 Post-Lawsuit Reflection: 1. The SEC’s December 2020 lawsuit, filed despite such expert warnings, exemplifies "regulation by enforcement"—a reactive, heavy-handed approach that top attorneys like Giancarlo deemed misguided even then. 2. The market crash and prolonged legal battle (mostly resolved in Ripple’s favor by 2023, with XRP sales to the public ruled non-securities) highlight the unnecessary damage inflicted. 3. Current thinking, as legal battles clarify crypto’s status, aligns more with the article’s forward-looking logic than the SEC’s outdated aggression.

5/7 Critique of SEC’s Approach to Digital Assets at that time (again, almost five years ago, now): 1. The authors note the SEC’s selective clarity—publicly stating Bitcoin and Ether aren’t securities while leaving XRP’s status ambiguous—created uncertainty. Their analysis preemptively challenged the SEC’s eventual aggressive stance. 2. Published by top legal minds with deep regulatory insight (Giancarlo led the CFTC), the article underscores the folly of the SEC’s enforcement-first tactic, which ignored XRP’s practical use and legal standing.

4/7 Decentralization Supports Non-Security Status: 1. The article noted that XRP’s network is sufficiently decentralized—its ledger would function without Ripple, and an 80% supermajority is required for changes, reducing control risks compared to Bitcoin or Ether’s 51% attack vulnerabilities. That’s right! The XRPL is MORE decentralized than BTC or Ethereum. SEC guidance (e.g., from Bill Hinman) suggests decentralized assets may not require securities regulation, a threshold XRP meets.

3/7 XRP as a Currency or Utility Token: 1. XRP is designed as a payment mechanism and liquidity tool (e.g., Ripple’s On-Demand Liquidity solution), not a speculative asset. Its adoption as a medium of exchange aligns it with currencies like #BTC and #Ethereum, which the SEC deems non-securities b/c of the Hinman “Free Pass” Speech – which had been the market standard for two years at the time of the article. 2. The XRP Ledger’s lack of mining and fixed supply (100 billion units, with over 50% escrowed by Ripple at the time of the article) differentiates XRP from its peers but doesn’t change its utility focus. XRP’s design as a liquidity tool, not an investment, was evident. Its decentralized ledger and utility in payments set it apart. The SEC ignored this, opting for a sledgehammer approach that materially hurt investors and innovation.

2/7 XRP does NOT meet the Howey Test! The article concluded that XRP does NOT meet the Howey Test’s criteria for an “investment contract” (a “catch all” term used in the definition of “security” under the U.S. securities laws). Why? 1. No Investment of Money: No contractual relationship exists between Ripple and most XRP holders; mere ownership doesn’t imply rights or privileges, unlike traditional securities. 2. No Common Enterprise: Lacks horizontal commonality (no pooling of assets or profit sharing among XRP holders) and vertical commonality (XRP’s value isn’t tied to Ripple’s success). 3. No Expectation of Profits from Others’ Efforts: Ripple markets XRP as a liquidity tool, not an investment, and its ledger operates autonomously, independent of Ripple’s actions. It’s a currency, not a security! These Top legal minds saw this clearly—yet the @SECGov plowed ahead anyway.

1/7 It’s Friday again! 🙏 Friday provides another opportunity for @cryptojusticeco to review how misguided the @SECGov's "regulation by enforcement" has been with respect to digital assets – notably XRP. Did you know that on June 17, 2020, SIX MONTHS PRIOR to the SEC filing the historic lawsuit against @Ripple et al causing BILLIONS of dollars in damages to innocent XRP tokenholders, the former CFTC Chairman, Chris Giancarlo @giancarloMKTS, and his senior colleague, Conrad Bahlke, from Willkie Farr & Gallagher @WillkieFarr published an article, “Cryptocurrencies and US Securities Laws: Beyond Bitcoin and Ether,” concluding that XRP is not a security under U.S. securities law? A thread 🧵🪡 . . .

The final crossing of t’s and dotting of i’s – and what should be my last update on SEC v Ripple ever… Last week, the SEC agreed to drop its appeal without conditions. @Ripple has now agreed to drop its cross-appeal. The SEC will keep $50M of the $125M fine (already in an interest-bearing escrow in cash), with the balance returned to Ripple. The agency will also ask the Court to lift the standard injunction that was imposed earlier at the SEC’s request. All subject to Commission vote, drafting of final documents and usual court processes. That’s all folks!