Thread by @jchervinsky

0/ #Cryptotwitter sharpening its knives for @Ripple today. Plenty of good takes already on whether $XRP is a security, so let me tackle a different question: what happens next?

Spoiler: if you're wondering "when @bgarlinghouse perp walk," prepare to be disappointed.

Thread.

1/ First, keep in mind that the SEC's guidance yesterday is *not* the law. It's only the SEC's current (and non-binding) interpretation of the law -- an explainer for how the SEC will make charging decisions in the #crypto space.

sec.gov/news/speech/sp…

2/ Ultimately, what is or isn't a security will be determined by the courts through litigation, which is how we got the Howey test in the first place. Congress could also pass a clarifying statute and make our lives easier. (please support @coincenter)

coincenter.org/donate

3/ The SEC is surely confident that its guidance will hold up in court, but regulatory agencies don't always get it right. For example, take the CFTC's recent loss in its Monex litigation re: the meaning of "actual delivery" of precious metals.

jdsupra.com/legalnews/two-…

4/ Eventually, a #crypto company under SEC investigation will decide to fight back and take the SEC to court (@ me if that's you). Then we'll find out if the SEC's guidance stands up to scrutiny.

5/ How does the SEC improve its chances of winning that case? It starts by going after the low-hanging fruit -- the obvious securities issued by #crypto companies that don't have the money, experience, etc. to fight back.

sec.gov/news/press-rel…

6/ Low-hanging fruit @Ripple is *not.*

ripple.com/insights/rippl…

7/ Point is, even if you're convinced that $XRP is a security, the SEC will still likely start by going after other, easier targets first. There are plenty of BitConnect-style ponzi schemes and outright frauds in the market, and the SEC only has so many resources for #crypto.

8/ Okay, assume the SEC *does* go after @Ripple. What does that look like?

9/ Generally, prosecutors don't approach corporate regulatory offenses with guns blazing. You have to really piss someone off to get your office raided by the FBI. Corporations get a benefit of the doubt that individuals like, say, @CharlieShrem do not.

medium.com/@cshrem/a-geek…

10/ Enforcement actions are usually careful and calculated. Consider the DOJ's "Principles of Federal Prosecution of Business Organizations," which says prosecutors owe a duty of "thoughtful analysis" to a corporation's shareholders before filing charges.

justice.gov/usam/usam-9-28…

11/ Enforcement agencies also have to keep ongoing corporate investigations and settlement discussions confidential. This is largely to protect the corporation: the mere accusation of wrongdoing can cause as much damage to investors and shareholders as a final verdict.

12/ The less established the corporation and the less legitimate its conduct, the more aggressive prosecutors can be. But corporations with a lot of (a) shareholders, (b) employees, (c) connections, and (d) money are rarely charged without a lengthy negotiating process first.

13/ All this to say, we may not know what the SEC thinks of $XRP until the case has already been settled. Dozens of eight- and nine-figure cases have only been revealed after *years* of investigation and settlement discussions.

sec.gov/litigation/lit…

14/ Plus, even if $XRP is a security, there are *many* potential outcomes that leave @Ripple standing. Non-prosecution agreements, deferred prosecution agreements, fines, compliance monitors, you get the idea.

15/ Conclusion: this is not financial or legal advice, but I personally would not go full degenerate shorting $XRP on BitMEX thinking yesterday's SEC guidance spells the imminent end of @Ripple. The next couple years sure will be interesting, though.

16/ disclosure . . . this thread may constitute an advertising communication under Rule 1-400 of the California Rules of Professional Conduct . . . I will try to avoid tripping this regulation in the future. Tweeting from private practice is hard, folks!