In December 2020, prominent American law scholar Joseph Grundfest warned former SEC commissioner Jay Clayton against suing Ripple, arguing that it would harm innocent XRP investors worldwide.
John E. Deaton of Crypto Law US posted the letter on X, where he also discussed the hypocrisies and immoral actions taken by Jay Clayton and other SEC officials.
Grundfest, a former SEC commissioner, claimed that by merely starting the process, all parties and intermediaries would cease doing business with XRP, resulting in a shortage of liquidity that would impact the token’s price and ultimately cause innocent third parties to lose billions of dollars.
The letter also emphasizes XRP’s significance as one of the biggest cryptocurrencies available. As of December 16, 2020, XRP was the third-largest coin with a market valuation of about $23.8 billion. “A wide range of policy concerns with significant consequences for the nation’s financial and securities markets” would be involved in such a lawsuit, according to Grundfest.
Furthermore, Deaton cited an interview in which Clayton said that he enjoys suing a company’s management, even in cases without fraud, because it “changes the dynamics.” In this case, the executives in question are Brad Garlinhouse and Chris Larsen of Ripple. Deaton claims that this is an intimidation strategy that puts more pressure on the government, which is why Grundfest advises against using it.
Speaking of SEC policies, Grundfest questioned the agency’s impartiality and the real motivation for the case. Given the staff’s explanation of the similarities between XRP and ETH, why hasn’t ETH been accorded the same treatment in the absence of any federal law enforcement?
“There isn’t a significant difference between Ether and XRP’s operations that the staff has identified that would affect how the federal securities laws are applied. It is fundamentally unfair to impose securities law responsibilities on XRP while ignoring Ether, which calls into doubt the Commission’s discretionary power.
In addition, Grundfest argued that if there isn’t a “material distinction” between ETH and XRP, neither should be subject to the same federal regulations or free market circulation. Grundfest is dubbed the “first ETH conspiracy theorist” by Deaton because of his seeming preference for ETH over XRP.
FedNow’s creation led Crypto Twitter to speculate that the lawsuit was likely an attempt by the Fed and SEC to displace XRP and Ripple in favor of the payment rail, which was launched in 2019 and serves as the primary means of facilitating cross-border transactions and providing liquidity to institutions.