Ripple Effect? US Accountability Office Rules SEC Broke the Law

Ever since a US judge ruled in July that XRP tokens are not securities, the SEC has been the underdog in its long-running feud with Ripple Labs.

Meanwhile, a new development strikes a blow against the SEC’s standing with the government. The US Government Accountability Office ruled Tuesday that the Commission violated oversight rules with a recent bulletin issued to cryptocurrency companies.

GAO: New SEC Crypto Rule Was Against The Rules

The GAO said:

“On March 31, 2022, the United States Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 121 (Bulletin). The Bulletin provides interpretive guidance regarding how covered entities should account for and disclose their custodial obligations to safeguard cryptoassets held for their platform users. SEC did not submit a report pursuant to the Congressional Review Act (CRA) to Congress or the Comptroller General on the Bulletin.”

The GAO notes that the CRA requires agencies to report new rules to Congress and the Comptroller General. These reports must be made before a new rule can take effect. Furthermore, the GAO says Bulletin No. 121 meets the APA definition of a rule. Therefore, the GAO concluded it is subject to the requirement.

Blockchain Association Chief Policy Officer Jake Chervinsky said in a post on X:

This is huge.

The GAO reviewed SAB 121, an illogical anti-crypto accounting bulletin issued by the SEC last March, and found that it’s a “rule” under the CRA and APA.

The SEC didn’t comply with either.

This is a clear statement from a federal agency that the SEC broke the law. https://t.co/brglK3sm8S

— Jake Chervinsky (@jchervinsky) October 31, 2023

Ripple Amicus Curiae Lawyer: “Incredible”

John E. Deaton, founder of CryptoLaw and amicus curiae attorney in the Ripple Labs case, said it was “an incredible statement” for the GAO judge to make:

“Amicus Curiae attorney and CryptoLaw US founder John E. Deaton had this to say:”
“This is a clear statement from a federal agency that the SEC broke the law. Ever since the Ripple lawsuit, the SEC has consistently NOT followed the law.”

Deaton added:

” A federal judge literally stated that the SEC’s enforcement lawyers, and the leadership they report to, are not only hypocrites, but they also lack a faithful allegiance to the law.”

Meanwhile, Ripple Labs is sitting tight, waiting for a resolution to its years-long feud with the SEC. It seems the SEC is backing down from or losing to the cryptocurrency industry on every front since it started going after Ripple.

Is this latest ruling against the SEC by a government agency another fortuitous sign for Ripple and the crypto industry? It’s not the only development in the last week that reveals the SEC case against Ripple Labs and the rest of the crypto industry is losing legs to stand on.