Ripple Labs’ chief legal officer, Stuart Alderoty, has criticized the United States Securities and Exchange Commission (SEC) for repeatedly using the term “crypto asset security.” He argues that the term has no legal foundation. He further accused the SEC of attempting to mislead judges by using the phrase.

Ripple Lawyer Slams SEC

The criticism follows a recent SEC filing on August 30. In the filing, the SEC warned that it might challenge any proposal by the now-defunct crypto exchange FTX to use stablecoins to repay creditors. The SEC noted that FTX’s portfolio includes “crypto asset securities.” Alderoty sees this as part of an effort by the SEC to insert legally unsupported terminology into legal arguments.

A similar concern has been raised in other legal contexts. In a case involving the crypto exchange Kraken, the Federal Court for the Northern District of California has also questioned the SEC’s use of the term “crypto asset security.” The court described the concept as “unclear at best and confusing at worst.”

The term 'crypto asset security' is nowhere to be found in any statute—it's a fabricated term with no legal basis. The SEC needs to stop trying to deceive judges by using it. pic.twitter.com/CyNbUbeoYM

— Stuart Alderoty (@s_alderoty) September 2, 2024

Alderoty also criticized the SEC’s approach in other areas. In an X post on August 29, he referenced the regulator’s Wells notice to the NFT marketplace OpenSea. The notice claimed that some of the tokens sold on the platform might be unregistered securities.

Alderoty compared the situation to a case from over 40 years ago, where the SEC had ruled that an art gallery did not need to register with the SEC, even if buyers viewed the art as an investment.

SEC Art Ruling Revisited

In a letter shared by Alderoty, the Art Appraisers of America, representing artist William Nelson, sought clarification from the SEC on whether selling lithographs and print drawings could be considered selling unregistered securities.

Fun fact: In 1976, the SEC ruled that art galleries, even when promoting and selling to buyers that had investment motives, didn’t need to register with the SEC. https://t.co/CtQJ3mlPkh pic.twitter.com/oR8EgGpXoo

— Stuart Alderoty (@s_alderoty) August 29, 2024

The gallery was concerned because collectors might purchase the art with investment intentions and later sell it at a higher value. The SEC, at the time, chose not to take enforcement action, stating that registration was not required.

However, the letter from the SEC did note that the decision could change if different facts or conditions emerged. It emphasized that the ruling was specific to the situation at hand and did not constitute a broader legal conclusion.

Alderoty’s comments come as the SEC continues to face criticism from the crypto industry over its regulatory approach. The use of the term “crypto asset security” appears to be the focal point of the ongoing debate between the regulator and industry participants.