Can the SEC vs Ripple Case Potentially Replace The Howey Test? Cardano Founder Suggests

The SEC has officially appealed its case against Ripple following a historical ruling on Aug. 7, in which Ripple was ordered to pay a $125 million civil penalty, although the regulator was asking for $2 billion. The motive is that the district court’s decision goes against long-standing Supreme Court precedents and established securities laws.

Ripple’s CLO, Stuart Alderoty, expressed his disappointment with the SEC’s decision. He called the lawsuit “irrational” and “misguided” from the start and mentioned that the court had already rejected the SEC’s claim that Ripple acted recklessly and that there were no allegations of fraud, victims, or losses. 

Charles Hoskinson, the founder of Cardano, in a reaction to Alderoty’s comments ironically suggested that the ongoing Ripple case could potentially replace the Howey Test, the legal test used to determine whether certain transactions qualify as investment contracts under U.S. securities law. 

While it is a sort of joke from Hoskinson, however, considering that Howey was set in 1946, when the founders of XRP and Ripple were not even involved in the project, and that the Ripple case has become an important point for many in the cryptocurrency market, it may not be so distant from reality.

Many people in the industry believe this case is a critical moment for getting clarity on the rules around digital assets, and the outcome could set new standards in securities law regarding crypto.