What if Ripple loses and XRP is deemed a security?

The outcome of the Veritaseum case could provide guidance to XRP holders looking for answers about what will happen to their assets.

This question has been asked many times by the thousands of XRP holders who await a conclusion to the SEC v. Ripple lawsuit, but no answer has been able to satisfy the inquiring minds.

“So what happens to XRP holders if XRP is declared a security and has to be registered with SEC?”, a Twitter user recently asked John Deaton, the attorney representing over 67,000 XRP holders with amicus curiae status in the case.

“It’s up in the air [to be honest]”, Deaton admitted as he offered an educated guess on how things might go down in the event that XRP is deemed a security.

“Most likely, the status quo would remain in effect during an appeal. A buyback could be arranged for those in the U.S. I know the SEC offered a buyback of the Veri token but I do not know the specifics.

“I was referencing the Veritaseum case. My understanding is the SEC seized 98% of the Veri tokens. The SEC created a fund from the money it seized and offered Veri holders a buyback if they sold the tokens back to the SEC at a set price”.

The SEC filed a case against Veritaseum and its owner Reginald Middleton in August 2019 alleging they “fraudulently raised millions of dollars in virtual currency from the unregistered sales of securities called “VERI” based on a series of false and misleading statements to potential and actual investors, including misrepresentations about the potential profitability and viability of Veritaseum’s purported operations, the use of funds raised in the VERI ICO, and the amount of funds raised in the VERI ICO. The Commission also alleged that Middleton manipulated the price and volume of VERI on secondary digital-asset trading platforms during the VERI ICO.”

On November 1, 2019, the Court entered a final judgment that ordered the Defendants to pay $7,891,600 in disgorgement and $582,535 in prejudgment interest, and Middleton to pay a $1,000,000 civil penalty.

The final judgment created a Fair Fund, so the penalty, along with the disgorgement and prejudgment interest, could be distributed to investors harmed by the Defendants’ conduct. Investors had until November 1, 2021, to submit a claim for eligibility for the Veritaseum Fair Fund.

The final judgment also appointed Holland & Knight, LLP, as Distribution Agent for the Fair Fund to, among other things, oversee the administration and distribution of the Fair Fund to harmed investors and Miller Kaplan Arase LLP as Tax Administrator to fulfill the tax obligations of the Fair Fund.

On February 17, 2021, the Court issued an Order approving the Claims Process and Distribution Plan