In recent months, a number of class actions have been brought against Ripple for selling its XRP token   in an unregistered securities offering. So far, the U.S. Securities and Exchange Commission has issued no official statement on the matter, which has left everyone guessing.

To help end the uncertainty, Chris Giancarlo, former president of the Commodity Futures Trading Commission, published an article last week claiming that Ripple's XRP is not a title. Giancarlo is famous for helping to establish the CFTC's position that Bitcoin (  BTC  ) and Ether (  ETH  ) are not securities. So it would seem that he is the right person to plead this case.

The only problem is that Giancarlo no longer works for the CFTC - he is now in private practice. Not only that, but he also currently works for a law firm that is part of Ripple's payroll. Given the obvious conflict of interest here, before reading the document, I prepared to expect some bias. However, I never could have imagined how bad it would be.

I know it kills the suspense, but there is no way to mince words here: the argument put forward in Giancarlo's document that Ripple's sale of XRP is not considered a title offering is absurd and absurd, to the point that it makes me think that Giancarlo was willing to put his name publicly on it.

Read on in today's article by browsing through Giancarlo's analysis to find out if selling XRP is a stock offering, as well as a real analysis to find out if it is or not.

How to know if a symbolic offer is an offer of securities

The Howey test is the primary method used by the SEC to determine whether or not an investment is an offer of securities. If this is the case, the issuer must either register the offer with the SEC, or ensure that the offer falls under a recognized exemption from registration.

For a quick reminder, the Howey test consists of four parts which were established in a case of the Supreme Court of 1946. The   decision   was that an investment contract exists when there is:

"A contract, transaction or scheme by which a person invests their money [part one] in a joint venture [part two] and is expected to expect profits [part three] only through the efforts of the promoter or a third party [part four]]. “

For the sale of XRP to be considered an offer of securities, it must meet each of these conditions. If the offer fails even one of them, it is not considered as a securities offer.

Read on to see how the XRP compares to the Howey test.

Investing money

The first part of Howey's test is quite simple: was there an investment of money in the transaction?

In his analysis, Giancarlo asserts that the XRP does not respond to this part of the Howey test because "the common understanding of the term 'investment' is the transfer of something of value in exchange for future rather than present performance."

At first glance, this seems reasonable. However, the idea of ​​"investment" as expectation of future returns is managed by the "expectation of profit" pin of the Howey test. There is no reason to confuse it here with the "money investing" pin.

Essentially, Giancarlo makes a circular argument to avoid admitting the obvious: there is no way to say that there was no investment of money here. People have clearly paid money in exchange for tokens XRP . There is no other way to see this. I think almost all the courts that have analyzed this would agree that there was an investment of money.

Keep in mind that the fact that the XRP offer passes this stage of the Howey test does not mean that Ripple had an unregistered offer of securities. The offering has yet to pass all other components of the Howey test. Thus, Giancarlo did not have to put in as much creative effort to try to argue against this aspect. Of all the teeth that could be encountered, none is stronger than this.

Yes - there was definitely an investment of money when people bought XRP . Ripple owned XRP and sold it for US dollars. End of the story.

Joint venture

The next part of the Howey test mainly refers to the question of whether the returns are shared by those who have invested on the basis of the efforts of a joint venture. This component is probably also respected because all XRP holders share the gains and losses when the value of their tokens increases and decreases according to Ripple's management efforts.

In Giancarlo's document, he states that there is no joint venture in this case because "an XRP holder does not have the right to share the profits and losses of Ripple".

It's a terrible argument. There are countless investments that are classified as securities that do not allow you to share the profits or losses of the business. Take a link, for example. You do not share the profits or losses of the company or the government that issued them, but a bond is undoubtedly a guarantee.

Next, Giancarlo compares Ripple to Bitcoin to help him support his argument. He claims that the holders of XRP are no different from the holders of BTC , and if BTC is not a security, then XRP is not either.

Unfortunately, there is a big gaping flaw in this argument: Bitcoin development is really decentralized, while XRP is dominated by Ripple. So the XRP owners are obviously in a joint venture, because their fate is shared equally and depends almost entirely on Ripple's development efforts. The XRP network requires constant work and a large part of the use of the token depends on its future development. So to claim that there is no common enterprise is clearly to deny the reality.

Giancarlo opposes this reality by claiming that the XRP registry would work without Ripple's participation. And if it is true that if Ripple were to close today, XRP would continue to exist, it is also true that the price of XRP would drop and that the use of the platform would disintegrate.

Yes - XRP holders have invested in a joint venture. All of the funds are pooled by Ripple to develop the system, and users all benefit or lose from corresponding fluctuations in the price of the token.

Waiting for profits

In his article, Giancarlo argued that there was no expectation of profit because Ripple never officially promised any kind of profit or return to investors and instead emphasized that the main objective of XRP is liquidity.

It was a wise move for Ripple, as any marketing of potential profits or an increase in the price of XRP would automatically have its SEC sales of XRP marked . But just because Ripple doesn't promise future profits in marketing doesn't mean people don't buy XRP in the hopes of making a profit. Anyone who has followed crypto for the past few years knows that people are buying XRP in the hope that its price will go up.

XRP was one of the most successful tokens at any given time. To argue that there is no expectation of profit is absurd, let alone frivolous. Kik Telegram and have both tried to make that argument with the SEC and have been slaughtered.

Then Giancarlo continues and makes a ridiculous comparison between XRP and Bitcoin , arguing that because Bitcoin is not a security, XRP fails to respond to this pin.

But again, this comparison is very flawed. The Bitcoin is not safe because it does not meet all the requirements of the test Howey. So even if people buy BTC in the hope of profit, it is not a guarantee because the other parts of the Howey test are not met.

Although Giancarlo does his best, his arguments in this area are circular and absurd.

Yes - users have purchased XRP in the hope that its price rises.

Others' efforts

The last pin refers to the question of whether the profits come from the individual efforts of a person or entirely from the efforts of the third party in which he has invested. Although Giancarlo does not take the time to explain his case on this pin in detail, he claims that the benefits of holding XRP did not come entirely from the efforts of the Ripple team. 

His argument is that "the XRP architecture is completely autonomous and exists entirely independently of Ripple". To support this, he points to the fact that most of Ripple's XRP is being held in receivership and that the amount that is released is controlled by Ripple's program. Controlling the supply of the token is only a minor means of influencing the price of the token.

Take a look at Ripple's website and you will see the entire team behind Ripple who is advancing the development of the token and its adoption among institutional investors.

As mentioned above, it is possible that the XRP registry could continue to operate without the Ripple team. But it would undoubtedly lower the price of the token dramatically. As such, it is clear that the growth of XRP and the corresponding profits for token holders depend heavily on the efforts of the Ripple team.

Yes - XRP buyers are simply passive investors who rely on the work of Ripple's core team to deliver new products, promote adoption, and increase the overall value of the token.

The sale of XRP is clearly an offer of securities

In my opinion, XRP clearly meets all of the conditions for the Howey test and would be considered security. Through his article, Giancarlo relies heavily on the assumption that Bitcoin and Ether have failed every strand of the Howey test, which is simply not true.

His entire argument was amateurish and intentionally misleading. Very distinct teeth have been grouped together and supported by absurd curses to confuse and distract.