Dust Settles: Interpretation of the Court Hearing Event on SEC's "Unregistered Securities" Charges Against Aleo

#SEC# #ALEO#

Recently, I believe everyone has heard about the hearing of the SEC( (U.S. Securities and Exchange Commission) and the Aleo Network Foundation. Here are the latest developments that Lao Feng has learned about the event:

The U.S. District Court for the Southern District of New York held a preliminary hearing on July 22 to discuss the SEC's charges against Aleo for alleged unregistered securities offering.

Core Controversy:

SEC claims: Aleo's token $ALEO is a security, and its token sales and mining activities from 2021 to 2023 were not registered in accordance with the law.

Aleo defends: emphasizing that the essence of the technology is a privacy computing network, the token is a functional tool ( UtilityToken ), and cites similar cases ( such as Ripple ) advocating for exemption.

Judge's attitude: The judge did not rule in court and required both parties to submit supplementary materials by August 19, focusing on whether the "token economic model constitutes an investment contract."

Subsequent key nodes:

August 19: Both parties submitted supplementary evidence, including details of token distribution and community governance rules.

Early September: A second hearing may be held to decide whether to dismiss the SEC lawsuit or proceed to a formal trial.

Potential Impact:

Aleo could become another case establishing "functional tokens as non-securities" after Ripple(XRP.

We found that various signs indicate that the rumors of "ALEO being sued in the U.S." that I reported in an article over eight months ago are not unfounded, but rather have some relation.

The China Electronics Technology Group team contacted A16z in the United States via email to verify rumors regarding a legal lawsuit related to Aleo immediately after receiving the news. At the same time, they reported this incident through social media platforms such as "Aleo Ambassador" and "Aleo Chinese Community." Although the email received no response, considering the current lawsuit between the SEC and Aleo, the overall situation requires an explanation.

What impact will this court hearing have on Aleo going forward?

Old Feng carefully reviewed the publicly available information from the SEC and found that this hearing is relatively favorable for Aleo! The reasons are as follows:

First, from the initial hearing, the SEC's lawsuit against Aleo is very similar to the SEC's case against XRP four years ago, which ended in a settlement between the parties;

The SEC sued Ripple, claiming that XRP is a security. Last year, the judge ruled in favor of both parties. Selling XRP to institutional investors is considered the sale of unregistered securities, resulting in Ripple being fined $125 million. However, selling XRP to retail investors through exchanges is not considered a sale of securities.

In the final settlement, both parties waived their appeals, and the fine of $125 million was reduced to the mutually agreed amount of $50 million.

However, there are also some points that need attention. The SEC stated that this settlement indeed reflects "any assessment of the substantive content of the claims alleged in the lawsuit." In addition, the SEC's decision to resolve this enforcement action does not necessarily reflect its position on any other cases.

Second, after Trump takes office in November 2024, he nominates Atkins, who claims to be the "Crypto Czar," to serve as the SEC chairman. The various environments that Aleo is facing now are more favorable than those for XRP.

Regarding digital assets, the SEC, led by former Chairman Gensler, believed that most digital tokens are securities under the notorious Howey Test established in the SEC v. WJ Howey Co. case and must be registered under the Securities Act. In the Howey case, the U.S. Supreme Court ruled that if an investment contract involves "the investment of money in a common enterprise with profits to come solely from the efforts of others," then the investment contract is considered a "security" under the Securities Act. This approach has led to the often-criticized "enforcement regulation" of digital assets, resulting in the SEC reaching multiple enforcement settlement agreements and imposing fines against cryptocurrency and digital asset issuers. However, as mentioned above, the SEC, now led by Atkins, may propose new regulations to clarify the definition of digital assets and limit its enforcement focus on unregistered digital asset securities offerings to situations where there is clear evidence of fraud and abuse. The U.S. Securities and Exchange Commission (SEC) recently formed a new cryptocurrency special working group led by Peirce, tasked with developing a "comprehensive and clear regulatory framework" for cryptocurrency assets, which further underscores this point. The SEC's establishment of the cryptocurrency special working group indicates that it is actively focusing on cryptocurrencies and digital assets and may provide some initial clues about the SEC's work priorities in this area.

SEC Chairman Paul Atkins is studying the inclusion of "innovation exemptions" in the current regulatory framework with the aim of supporting the tokenization of stocks and other assets.

Third, Hirota Akira, the CEO of the Aleo Foundation, was invited to attend Trump’s White House cryptocurrency asset cocktail party, skillfully managing the relationships between politics and business.

Koh Harada, who recently rose from the Chief Operating Officer of the privacy-focused blockchain company Aleo to Chief Executive Officer, has led Aleo to raise over $200 million from investors such as SoftBank and A16z. The company chose to establish itself in the United States, while many competitors opted for offshore jurisdictions like the Cayman Islands to avoid various regulations.

"Our registration in the United States was not a spur-of-the-moment decision," said Hirota Akira. After speaking with several legal and compliance experts, the company realized that "the United States is the best fertilizer for technological development—it's that simple," he said.

Harada added that Aleo's focus on privacy features combined with smart contract capabilities has made it the preferred resource for other startups looking to re-enter the U.S. The company has chosen Wyoming, which is known for its cryptocurrency-friendly policies.

"Wyoming is the most cryptocurrency-friendly state in the U.S.," Harada said. "They have developed forward-thinking policies and even established a blockchain research center at the University of Wyoming."