Ripple's Chief Legal Officer, Stuart Alderoty, recently criticized the SEC's use of the term "crypto asset security," and called it legally baseless and misleading. Alderoty’s comments were made after the agency warned it might challenge stablecoin repayments to creditors of FTX. Meanwhile, Brazil's Supreme Court upheld a ban on Elon Musk's X platform because of ongoing legal disputes, and in Nigeria, the health of detained Binance executive Tigran Gambaryan worsened. His attorneys are subsequently filing a new motion for bail.
Ripple Slams SEC’s Use of Crypto Asset Security
Ripple Labs' Chief Legal Officer, Stuart Alderoty, criticized the United States Securities and Exchange Commission (SEC) for its repeated use of the term "crypto asset security." Alderoty argues that the phrase has absolutely no legal basis.
The lawyer’s comments were made in response to the SEC's recent actions, including a warning in an Aug. 30 filing that it could challenge any plan by the now-defunct crypto exchange FTX to use stablecoins to repay creditors. The SEC believes FTX's portfolio contains"crypto asset securities."
Alderoty contends that the SEC is trying to mislead judges by using the term, and stated on Sept. 2 that "'crypto asset security' is nowhere to be found in any statute—it's a fabricated term with no legal basis." He also criticized the SEC for trying to deceive the judiciary with such language.
This criticism is very similar to concerns that were raised in an August update to the SEC's legal battle with crypto exchange Kraken, where the Federal Court for the Northern District of California also questioned the clarity of the "crypto asset security" concept. The court described it as "unclear at best and confusing at worst."
Alderoty also addressed the SEC's Wells notice to the NFT marketplace OpenSea, which claimed that the tokens sold on the platform might be unregistered securities. He pointed out a precedent from over 40 years ago when the SEC ruled that an art gallery was not required to register with the agency, even if buyers purchased art with investment intentions.The SEC had decided in 1976 that the Art Appraisers of America, which was representing artist William Nelson, did not need to register when selling lithographs and print drawings, even if collectors viewed them as potential investments.
However, the SEC’s decision was conditional, as the gallery could face enforcement if it made false declarations or if new facts emerged that warranted a different conclusion. The SEC clarified that the 1976 ruling was specific to the case and did not represent a broader legal conclusion.
SEC Warns FTX Over Stablecoin Repayments
The United States SEC issued a warning that it may challenge payments made to creditors of the defunct crypto exchange FTX if the exchange opts to return funds using stablecoins. In an Aug. 30 filing to the United States Bankruptcy Court in Delaware, SEC lawyers stated that while repayments made with stablecoins might not be technically illegal, the agency reserves the right to contest any repayments made with US-dollar pegged crypto assets.
Since FTX’s collapse in November of 2022, the exchange has explored several ways to pay back its creditors, including a now-abandoned plan to reboot the exchange. While many creditors have requested in-kind payments, FTX’s latest liquidation plan proposes paying out claims based on the US dollar value of asset prices at the time of the bankruptcy, either in cash or with stablecoins.
According to the SEC, it is not expressing a legal opinion on the transactions outlined in FTX’s plan but maintains the right to challenge any transactions involving crypto assets. The SEC also pointed out that the current repayment plan still has to designate a "distribution agent," which is the entity responsible for disbursing funds to creditors in cash or stablecoins.
The SEC’s warning drew a lot of criticism from some well known people in the crypto community, including Alex Thorn, head of research at Galaxy Digital, and Paul Grewal, Coinbase's chief legal officer. Thorn criticized the SEC for what he described as "jurisdictional overreach," and argued that the agency is unjustifiably keeping the possibility open that dollar-backed stablecoins could be classified as “crypto asset securities,” despite having dropped its case against Binance USD (BUSD) issuer Paxos in July.
Thorn also accused the SEC of using threats to maintain control over the market without really providing any clear guidance, Grewal agrees with this, and stated that investors, consumers, and markets deserve better than the SEC's approach of using threats and aspersions instead of offering clarity.
Brazil Court Upholds Ban on Musk’s X
Meanwhile, a Brazilian Supreme Court panel upheld a decision to suspend the operations of the social media platform X in the country. On Sept. 2, a unanimous ruling by five Supreme Court justices supported Justice Alexandre de Moraes' Aug. 30 decision that ordered the suspension of X after the refusal of its owner, Elon Musk, to appoint a legal representative for the platform's operations in Brazil.
Musk previously criticized Justice Moraes on X, and even accused him of being “evil” and a “dictator” for what Musk described as “illegal political censorship” of the platform. The ruling was made as an investigation was conducted and led by Moraes into X’s alleged role in spreading misinformation related to former Brazilian President Jair Bolsonaro.
Since Musk’s acquisition of the company in October of 2022, the platform has faced a lot of backlash. Many advertisers have pulled out because of reports of pro-Nazi content appearing alongside their ads.
According to Moraes' decision, X will stay suspended in Brazil until the company settles outstanding fines that exceed $3 million. Additionally, Brazilian residents and companies using virtual private networks (VPNs) to access X could face fines of up to 50,000 reais, or approximately $8,900.
The decision is a serious escalation in the legal battle between Musk and Brazilian authorities, and it is still unclear how Musk will respond now that four other justices have endorsed Moraes' ruling.
Binance Exec’s Health Worsens in Nigeria
The trial of the detained Binance executive in Nigeria, Tigran Gambaryan, resumed on Sept. 2, with his attorneys filing a new motion for bail because of his deteriorating health. However, lawyers for Nigeria’s Economic and Financial Crimes Commission (EFCC) opposed the motion, and argued that Gambaryan was not in poor health at all. This statement was made by the EFCC despite the presentation of Gamnaryan’s health records, which indicated that he needs surgery.
Family spokespeople revealed that critical medical documentation, like MRI images, had been missing from the health records provided to the court and prison officials failed to produce these records for months. They also claimed that Gambaryan’s legal counselors have been repeatedly denied access to him in prison or were unable to meet with him due to his worsening condition.
In a statement, Gambaryan’s wife, Yuki, shared her concerns over the denial of his health issues by Nigerian authorities, and explained that even the partial records released confirmed his need for surgery.
Gambaryan’s health has been a major concern, yet the court previously issued an arrest warrant in July against Dr. Abraham Ehizojie, a medical doctor at the Kuje Correctional Centre, for failing to appear in court and provide a comprehensive medical report on the executive.
The situation has drawn a lot of criticism from industry executives, humanitarian groups, and American lawmakers. In response, Georgia Congressman Rich McCormick introduced a resolution urging Congress to consider Gambaryan’s detainment as a hostage situation, describing it as “wrongful” and calling for the use of all available resources to secure his release.
The next hearing in the trial is scheduled for Sept. 4, where the judge will continue to consider the motion for bail.
