SEC hints appeal in lawsuit against Ripple

Category: Blockchain Crypto Regulatory
Posted by Content Team

The U.S. Securities and Exchange Commission has hinted at an appeal after a judge delivered a partial win for Ripple in its lawsuit against the commission.

The move comes after Terraform Labs’ lawyers said the ruling of Ripple’s case strengthens their defense and supports their request that the lawsuit be dismissed. In new documents filed late Friday for its case against Terraform Labs, the SEC claimed the decision doesn’t square with existing securities laws.

Previously, federal judge Analisa Torres ruled that Ripple did not violate securities laws in offering its native token XRP to retail investors but broke the law regarding institutional investors. The ruling was a landmark victory for the cryptocurrency industry, as it clarified the SEC’s definition of security and could have implications for other digital assets.

At the center of the issue is the Howey test, a legal test that determines whether a financial instrument constitutes an investment contract and thus falls under the regulatory purview of the SEC.

The commission claimed Ripple had created “an artificial distinction between the expectations of sophisticated institutional and retail investors.” These practices conflict with the Howey test.

The agency also argued that the ruling “improperly transforms” the decades-old test for determining when assets are securities into a subjective standard. The commission asked the court to reject that part of the decision, as the ruling does not align with the fundamental principles of the Howey test and the federal securities laws as a whole.

Contrary to Ripple’s assertions, much of the ruling supports the SEC’s claims in this case,” read the new documents. “Respectfully, those portions of Ripple were wrongfully decided, and this court should not follow them.”

Possibility of appeal in the Ripple case

Watcher Guru reports that it is unclear how the SEC’s appeal will proceed in court or if the commission will return to the Ripple ruling after the new filing. If the case resumes, the victory for crypto may not last long.

However, according to crypto lawyer and Crypto Law founder John Deaton, this appeal will not become a setback to the industry. It would take considerable time for the appeal to work its way through the court system.

It will be two years from now before the 2nd Circuit issues a decision,” said Deaton on Twitter. “The Torres Decision is the law until then.”

Torres ruled that programmatic sales of XRP to public buyers did not meet the Howey Test because public buyers did not have a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. It was because the structure of programmatic sales meant that public buyers did not know they were purchasing XRP from Ripple.

Even if the 2nd Circuit overturned Torres’ ruling, the SEC could still lose the case if Torres applied the test’s other factors, such as the “investment of money” and the existence of a “common enterprise.” Torres could rule against the SEC on the common enterprise factor, which is a more difficult factor to meet than the “expectation of profit derived from the efforts of others” factor.

Don’t let anyone underestimate how significant this win is for #XRP and #XRPHolders and @Ripple,” wrote Deaton.

Ripple CEO Brad Garlinghouse criticized the SEC’s attempts to assert jurisdiction over digital assets. On Twitter, Garlinghouse said that the SEC created a mess by posing as the “cop on the crypto beat” when it had no legal authority.

Ripple Chief Legal Officer Stuart Alderoty said a securities agency only has jurisdiction over securities. As Ripple does not have securities, the SEC should have no jurisdiction. He called the act “a political power play” that hurts everyone.