Ripple CTO Emeritus David Schwartz and former SEC official Marc Fagel disputed on X on July 13 over whether the SEC treated XRP as a security during its case against Ripple. Fagel argued the SEC case targeted Ripple's XRP sales practices rather than the crypto token itself, while Schwartz rejected this interpretation, saying the agency's legal theory effectively treated XRP as a security by claiming holders expected profits from Ripple's efforts. The disagreement centers on the SEC's enforcement case against Ripple, where the court ultimately found certain institutional sales were investment contracts while programmatic exchange sales were not.
Schwartz Rejects Fagel's Interpretation of SEC's XRP Case
Marc Fagel said the case "wasn't against XRP, just Ripple." He stated the SEC recognized that XRP, as code, was not inherently a security, and the violation arose from Ripple selling XRP under circumstances that created investment contracts.
![Marc Fagel's X post]()
Schwartz rejected that characterization, calling it "a bizarre attempt to rewrite history." While acknowledging the SEC conceded XRP was not a security per se, he argued the agency's broader legal theory still treated XRP as a security by claiming holders expected profits from Ripple's efforts. He stated the SEC's filings, public statements and the court's ruling contradicted Fagel's interpretation and showed that the agency's argument extended beyond Ripple's sales conduct.
![Schwartz's X post]()
Fagel Defends SEC's Focus on Ripple's Sales Conduct
Marc Fagel spent more than 15 years at the SEC and served as Regional Director of its San Francisco office from 2008 to 2013. He claimed the agency's "only legal argument was that Ripple sold it as a security." He pointed to the SEC's partial victory, suggesting the criticism should concern Ripple's conduct rather than an attempt to classify XRP itself as a security.
Schwartz rejected that distinction, arguing that describing XRP as "just code" did not concede that only Ripple's sales methods could create a securities violation. He wrote: "The SEC is absolutely not conceding here that the only issue is whether Ripple 'sold it as a security' as you claim." He clarified: "It is merely conceding that XRP is not 'per se' a security, that is, would necessarily be a security regardless of any facts and circumstances surrounding it other than its inherent nature as a digital token."
Exchange Sales Complicate SEC's Legal Theory
Schwartz centered his rebuttal partly on Ripple's programmatic XRP sales through cryptocurrency exchanges. The SEC alleged those transactions were securities offerings even though buyers generally did not know whether Ripple or another market participant had sold them the tokens. According to Schwartz, this cannot be explained simply by saying Ripple "sold it as a security." Buyers in blind exchange transactions were not necessarily exposed to Ripple's representations or aware of the seller's identity.
He said the SEC used a broader Howey theory under which XRP holders joined a common enterprise and reasonably expected profits from Ripple's efforts. Schwartz stressed: "The SEC absolutely argued that holders of XRP reasonably expected profits from Ripple's efforts and were in effect partners in a shared venture." He maintained that only such a broad theory could encompass exchange sales.
Court Ruling Narrowed SEC's Broader XRP Theory
For Schwartz, the phrase "just code" carries less legal significance than Fagel suggests. The concession established only that XRP was not automatically a security because of its technical characteristics. It did not establish that the SEC's securities theory depended solely on how Ripple sold XRP. He said the agency linked its investment-contract analysis to XRP holders, Ripple's activities and expectations of profit.
He argued that the SEC resisted separate analyses for different XRP transactions, relying instead on one Howey theory for institutional sales, exchange sales and other distributions. To support that interpretation, Schwartz cited the language used in the SEC's complaint and public statements, which referred to XRP itself as the security and described Ripple executives Brad Garlinghouse and Chris Larsen as "security holders." He shared: "The complaint itself frequently refers to XRP itself as the security. The SEC's press release complained Ripple 'sold XRP' without a registration statement. It described Chris and Brad as 'security holders'."
The court made distinctions the SEC had resisted, finding that certain institutional sales were investment contracts while Ripple's programmatic exchange sales were not. Schwartz views that partial rejection as evidence that the court narrowed the agency's broader theory.
FAQ
What did David Schwartz say about the SEC's treatment of XRP on July 13?
David Schwartz said the SEC treated XRP as a security by arguing that holders expected profits from Ripple's efforts. He rejected former SEC official Marc Fagel's interpretation that the case only targeted Ripple's sales practices, calling it "a bizarre attempt to rewrite history." Schwartz argued the SEC's legal theory extended beyond Ripple's sales conduct and effectively treated XRP itself as a security.
How did the court rule on Ripple's different types of XRP sales?
The court found that certain institutional sales were investment contracts while Ripple's programmatic exchange sales were not. According to Schwartz, the court made distinctions the SEC had resisted, which narrowed the agency's broader theory that had relied on one Howey analysis for all XRP transactions.
What is Marc Fagel's background with the SEC?
Marc Fagel spent more than 15 years at the SEC and served as Regional Director of its San Francisco office from 2008 to 2013. Across his 28-year legal career, he specialized in securities enforcement and oversaw investigations involving public company disclosures, insider trading and investment advisers.
