Legal expert challenges Ripple’s ODL deal under Howey Test

An important development has taken place in Ripple’s ongoing battle with the Securities and Exchange Commission (SEC) as Bill Morgan, a lawyer from the crypto sector, disputes the claim that Ripple’s On-Demand Liquidity (ODL) fits the Howey Test. This test determines whether the transaction is an investment contract and, hence, subject to securities law.

Morgan’s dissection of the ODL agreement has fostered a conversation around the crypto community, opening up the way for rethinking the perception of Ripple as a regulatory adherent. This investigation is also relevant as Ripple faces a tough period of appraisal regarding its compliance practices, which have significant implications for the whole cryptocurrency industry.

Consequently, Morgan’s case hinges on the application of the Howey Test, specifically if Ripple’s ODL transactions constitute an investment contract by providing the buyer with the opportunity for profit. Morgan’s review reveals the details of a contract Ripple entered into in 2020 with a partner undertaking ODL, which reveals Ripple’s suspected misconduct and competence doubts. 

He argues that the contract that provides XRP tokens to the client without passing title or any token sale does not fit the investment category under the Howey Test. Morgan names the “Committed XRP” term as a way to differentiate it from any exchange-traded fund (ETF) transactions.

The situation evolves when the ODL customer moves XRP from the bailment account, and Morgan argues that as account balances have not changed, the client cannot expect a profit either. He highlights that the market forces determine this aspect of the transaction, and the buyer’s speculative or profit-oriented thinking does not influence the automated process.  

Additionally, he says that buyers cannot purchase Committed XRPs for investment purposes due to contract terms. These clauses grant Ripple complete authority to terminate agreements and reclaim any XRP in the event of contract rule violations.

Even though his analysis is highly technical, Morgan also raises serious questions about the whole basis of what Ripple has denied until now. The consideration illustrates that the lack of an investment idea and the very strict stipulations on use may prevent the determination that XRP transactions are securities, which impacts Ripple’s compliance tactic and total legal strategy.

This matter goes beyond Ripple and affects the entire cryptocurrency space. Morgan’s insights will contribute to the ongoing regulatory discussions and could change how the market perceives meeting regulatory requirements in digital asset transactions. While regulators find themselves in an increasingly complex environment of digital assets, the findings might drive adaptation and clarity within regulation.

The assessment of Morgan on Ripple’s ODL service has a huge implication, not only calling for an in-depth investigation into compliance issues but also paving the way for a major reassessment of the regulatory norms in the crypto industry. 

This development heralds a fateful lever for the ongoing conversation between innovation and regulation, which may benefit future legal and regulatory frameworks in the digital currency sector. Morgan’s thesis comes on the heels of major crypto events; the community will have to wait and see whether it will define the future regulatory environment for cryptocurrency.

David Cox

David is a finance graduate and crypto enthusiast. He projects his expertise in subjects like crypto and Blockchain while writing for CryptoNewsZ. Being from Finance background, he efficiently writes Price Analysis. Apart from writing, he actively nurtures hobbies like sports and movies.

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