Ripple Case Ruling Criticized by Ex-SEC Official

John Reed Stark, an ex-official of the Securities and Exchange Commission (SEC), has voiced concern about a recent ruling in favor of Ripple Labs. He called the decision "troublesome" in a LinkedIn post.

Stark reviewed Judge Analisa Torres' decision on July 13. Torres ruled that Ripple's XRP token was a security for institutional investors but not for regular or employee sales. Ripple is fined and must refund institutional investors who bought tokens worth $720 million.

Torres argued that institutional investors expected Ripple to use sale profits to boost the XRP ecosystem and XRP's price. But regular investors buying from exchanges couldn't have the same expectation.

Stark worries this decision makes a "quasi-security" class that varies with investor sophistication. He thinks it's wrong that a token can sometimes be a security and sometimes not. Less informed retail investors get less protection, and token issuers have less liability for less disclosure.

Stark criticizes that this view goes against the principle of investor protection, which says investors' protection should not change based on whether they've read buying materials. "The Ripple decision flips this concept," Stark said.

Stark, who worked in the SEC’s Enforcement Division for 18 years,believes the decision may be appealed and likely reversed. He thinks the SEC will appeal, and the 2nd Circuit will overrule the decision related to regular and employee sales.

Ripple's CEO, Brad Garlinghouse, called the ruling a win for Ripple and the crypto world. Garlinghouse said the SEC might have a long wait before they can appeal. He also said the institutional sales decision was a small part of the lawsuit and a SEC appeal would only strengthen Torres' ruling.