In July 2023 , U . S . District Judge Analisa Torres , in SEC v . Ripple Labs Inc . before the U . S . District Court for the Southern District of New York , delivered a major victory for the industry by determining that XRP — a token issued by Ripple Labs — is not a security in and of itself under the Howey test . Judge Torres concluded that , unlike traditional securities , XRP ' s utility and value stem from its independent functionality within the Ripple network , not from Ripple ' s actions or promises .
Less than three weeks later , however , U . S . District Judge Jed Rakoff granted summary judgment to the SEC in a similar case — SEC v . Terraform Labs Pte Ltd ., also before the Southern District of New York — holding that Terraform Labs ' LUNA and MIR tokens were unregistered securities under the Securities Act . In stark contrast to Judge Torres , Judge Rakoff held that these tokens met the Howey test ' s criteria for investment contracts .
These conflicting court rulings — along with the SEC ' s potential inability to hold individuals criminally liable for the knowing violation of securities laws — have only fueled uncertainty , and have prevented the commission and the industry from coming to terms .
The Industry
For its part , the crypto industry has generally spoken with one voice , arguing for a tailored framework that would acknowledge the unique characteristics of digital assets . The implication of the industry ' s position is that large swaths of cryptocurrency should fall outside the definition of a security , and be bought and sold outside the strictures of the SEC .
In an attempt to force the commission ' s hand , crypto exchange Coinbase filed a writ of mandamus with the U . S . Court of Appeals for the Third Circuit in April 2023 seeking to compel the SEC to respond to its petition demanding the proposal of crypto-focused rules , which had languished at the commission since July 2022 .
According to its mandamus filing , Coinbase argued that " existing SEC registration and disclosure requirements are incompatible with digital assets , which differ fundamentally from the stocks , bonds , and investment contracts for which the securities laws were designed and that the SEC traditionally has regulated ."
The SEC remained unmoved . On Dec . 15 , 2023 , it denied Coinbase ' s petition : " The commission disagrees with the petition ' s assertion that application of existing securities statutes and regulations to crypto asset securities , issuers of those securities , and intermediaries in the trading , settlement , and custody of those securities is unworkable ." Coinbase immediately sought review by the Third Circuit , arguing that the SEC ' s determination was arbitrary and capricious .
Enter Prometheum
While the rest of the crypto industry has been engaged in a long-running battle to escape the SEC ' s jurisdiction , a once-obscure startup called Prometheum Inc . has instead embraced the commission ' s view , even going so far as to parrot its talking points . Meanwhile , the company has hired former staff from the Financial Industry Regulatory Authority , the SEC and the New York Stock Exchange to fill out its executive staff .
And so far , its compliant strategy has seemed to work . In July 2021 , a Prometheum affiliate was approved by the SEC and FINRA to act as an alternative trading system , permitting it to transact orders