Former Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo, published an opinion on June 17 arguing that XRP does not fulfil the criteria to be considered a security according to the Howey Test.
Giancarlo left the CFTC in April 2019, and he is no longer in charge of making such decisions. Perhaps even more questionably, he is now financially linked to Ripple, the biggest holder of XRP tokens.
“XRP is not a security”
Giancarlo’s report applies the three-pronged approach of the Howey test to XRP in order to assess it. To qualify as a security, a token must represent an investment “in (1) a common enterprise, with (2) an expectation of profits, (3) solely from the efforts of the promoter or a third-party.”
He concludes that XRP doesn’t meet any of the three criteria, before going on to refute long-standing concerns about Ripple’s XRP stash and the level of network decentralization.
But wait a second…
However, we may not be getting the most objective opinion on the matter.
Right at the bottom of the report, a footnote states that Willkie Farr & Gallagher, for whom Giancarlo works as a senior counsel, also provides counsel to Ripple on certain matters. Ripple, moreover, supplied “factual information” in the preparation of the report.
This is not to say that Giancarlo’s arguments are invalid, although this Forbes article picks apart some of them as questionable. Simply that it is hard to accept the report as being wholly impartial.
And if we can’t trust it to be that, then it doesn’t really matter who wrote it.
Ripple shooting itself in the foot?
The final decision on whether or not XRP is a security will likely have severe positive or negative consequences for a whole host of stakeholders in Ripple, XRP or any associated technologies.
One can only imagine that this report was supposed to carry some weight with the eventual decision-makers at the Securities and Exchange Commission. Ties to Ripple, however, make this questionable.
Ripple recently announced plans to extend its on-demand liquidity (ODL) to Brazil in the near future.