Ripple’s Chief Legal Officer, Stuart Alderoty, and Ripple’s CTO, David “JoelKatz” Schwartz, have raised concerns about the recent settlement between the U.S. Securities and Exchange Commission (SEC) and Stoner Cats 2 LLC.
The SEC had accused Stoner Cats 2 LLC of conducting an unregistered offering of crypto asset securities through non-fungible tokens (NFTs), raising around $8 million to finance the production of Stoner Cats, an animated web series.
In response, the SEC clarified its position, emphasizing that federal securities laws hinge on the economic substance of an offering rather than its labels or underlying assets. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized:
Regardless of whether your offering involves beavers, chinchillas, or animal-based NFTs, it’s the economic reality of the offering that guides the determination of what’s an investment contract and, therefore a security.
Ripple’s Chief Legal Officer Alderoty’s Skepticism
Stuart Alderoty expressed his reservations on Twitter regarding the settlement, implying that it might not have a lasting impact. He highlighted the fact that a settlement reached without admitting or denying guilt lacks true binding power.
Alderoty also hinted at a certain cynicism surrounding the agreement, suggesting that it might be more of a public relations move than a substantial resolution. He underscored the SEC’s mixed track record in legal battles, where they have faced defeats.
David Schwartz, also known as JoelKatz in the crypto community, added his voice to the skepticism surrounding the settlement. He cautioned against prematurely labeling it as a win for any party involved.
Schwartz advocated for a pragmatic approach, suggesting that settling for a relatively modest sum now might be a wiser choice than engaging in a protracted legal struggle that could result in significantly larger financial penalties. His message was clear: This settlement should not be seen as a victory for any side.
Within the crypto community, discussions emerged about potential strategies to evade SEC scrutiny. One community member asked Schwartz whether a project could safeguard itself by including a disclaimer stating that buyers understand the potential price fluctuations of the purchased NFT or token.
Schwartz, however, cast doubt on the effectiveness of such disclaimers. He predicted that the SEC could argue that the disclaimer was designed to be disregarded and might find elements in the project’s communication that could be interpreted as promoting potential financial gains, thereby undermining the value of such disclaimers.
Related Reading | Ripple’s Legal Ripple: 80% Global Hiring Amidst SEC Battle