Ex-SEC Chair Alludes to Capital Raising in Ripple XRP Sales, Pundits Point to Ethereum ICO

Industry commentators have spotlighted the Ethereum ICO following remarks from former SEC Chair Jay Clayton on Ripple’s XRP sales being attributed to securities transactions involving capital raising.

Clayton made these comments while speaking in an interview with Nine Blocks Capital co-founder Henri Arslanian on Jan. 26. The conversation revolved around the current crypto regulatory landscape in the United States and potential avenues for improvement.

Clayton argued that the crypto regulatory scene in the U.S. does not lack clarity. He contends that crypto-focused firms have advocated for exemptions from established securities laws that traditionally govern the financial sector, suggesting these should naturally extend to the crypto scene.

Clayton Comments on Ripple vs. SEC Ruling

Arslanian queried Clayton about his perspective on the significant July 13 ruling in the Ripple vs. SEC case. This ruling, offering a partial win to both parties, has garnered applause from the XRP community, as it underscored that XRP, by definition, is not a security.

In his response to Arslanian, Clayton emphasized that the U.S. SEC acknowledges two categories of securities transactions: those focused on capital raising, often found in ICOs, and those involving secondary trading.

The ex-SEC Chair highlighted the July 13 judgment, noting that the court identified Ripple’s initial XRP sales to institutions as unregistered securities transactions, whereas the secondary trading transactions were not categorized as securities offerings.

While acknowledging potential appeals for both rulings, Clayton emphasized a key point: the SEC maintains stringent regulation on transactions seeking to raise capital from the public through initial coin offerings (ICOs).

Does Ethereum ICO Tick the boxes of a securities transaction?

However, in a video from Digital Asset Investor on the interview, commentators from the XRP community spotlighted the Ethereum ICO as one of these transactions that raised capital from the general public.

Jay Clayton spins the SEC vs. @ripple decision, January 26th, 2024.#XRPUnleashed The Truth is coming soon… pic.twitter.com/OTDJ06LsKv

— Digital Asset Investor (@digitalassetbuy) February 4, 2024

For context, the Ethereum ICO lasted 42 days, having spanned July 22 to Sept. 2, 2014. In a statement then, Ethereum founder Vitalik Buterin revealed that investors could acquire 1,000 ETH with 1 Bitcoin (BTC), worth an average of $600 at the time. 

Buterin further stated that early entrants could get 2,000 ETH for 1 BTC (~$1,200) for the risk exposure. The 2,000 ETH are now worth over $4.5 million at ETH’s current price.

This indicates that investors who participated in the ICO made profits out of the efforts of the Ethereum team. The ICO raised about 31,500 BTC.

Notably, at the earlier stage of the recent interview, Jay Clayton noted that a fundraising transaction qualifies as a securities offering if the purchaser expects to make a profit from the efforts of the seller and if the purchased item is transferable. He made an example from tickets to a Broadway show.

Industry commentators argue that the Ethereum ICO ticks all these boxes of a securities transaction, leaving many to wonder why the regulatory body has given the project a free pass. Current SEC Chair Gary Gensler also previously said all PoS tokens fit the description of securities.

Nonetheless, the SEC has also not come for the team behind Ethereum despite the project pivoting to a PoS model in September 2022. When asked about Ethereum’s status, Chair Gensler has repeatedly failed to give a straight answer.