The ongoing legal matter between Ripple Labs and the US Securities and Exchange Commission is heating up again as speculation about a possible appeal from the SEC.
This comes after Judge Analisa Torres issued a landmark ruling in July 2023, finding that Ripple’s planned sale of XRP to ordinary investors did not violate securities laws.
The SEC, however, is clearly not happy with this decision, especially considering how it will affect any future regulatory actions.
Possible SEC Appeal
Reporter Eleanor Terrett of FOX Business recently shared comments from a former SEC attorney who thinks the agency will likely appeal the decision.
Many others within the SEC, according to this attorney, believe the decision is fundamentally flawed and should be overturned. There is added urgency because October 7 is the deadline for making such a request.
🚨NEW: Classic @SECGov A lawyer who recently left the agency tells me the SEC will ‘probably’ appeal Judge Torres’s July 2023 ruling on $XRP planned sales to @Ripple the blame is partly because: “everybody out there [at the SEC] you truly believe that the decision…
— Eleanor Terrett (@EleanorTerrett) September 26, 2024
The SEC will likely be more interested in reversing the portion of the order dealing with the sale of XRP systems than challenging Ripple’s $125 million fine.
Marc Fagel, who was a lawyer for the SEC, also spoke, and said that if there is an appeal, it will focus mainly on how these sales programs are determined to comply with securities laws.
This strategic emphasis may have a major impact on future cryptocurrency regulations. It is highly likely that there will be more court battles in the future, with experts such as attorney Fred Rispoli estimating that the SEC is likely to move forward with 75% of appeals.
Ripple’s Response and Market Reaction
Regardless of these changes, Ripple’s leadership maintains its confidence. Expressing that they believe that this issue has reached its conclusion, CEO Brad Garlinghouse and Chief Legal Officer Stuart Alderoty came out and said that they do not plan to challenge the court’s decision.
They argue that further legal wrangling could threaten capital formation and investor confidence, two key aspects of the SEC’s mandate.
This uncertainty has driven the price of XRP in the markets to be highly volatile. Although the movement is still small, the price of XRP is still around $0.59, far from a significant deviation from recent highs.
Pending the end of this uncertainty in the form of clarification, trading prices have fallen on hopes that it may be headed for an appeal.
US Senate Candidate: Appeal Will Fail
At that time, Atty. John Deaton, a candidate for the Massachusetts Senate, offered comments on the Ripple case, expressing the belief that an appeal would not succeed. Deaton, who was instrumental in Ripple’s legal victory over the planned sale, thinks the Second Circuit Court will not be able to reverse the decision.
His opinion comes from the application of the Howey Test, where he notes that the judge focused only on the third part—”the expectation of rewards based on the efforts of others.”
Deaton said, referring to the affidavits of 3,800 XRP holders, Judge Torres correctly applied the third factor in his decision.
This evidence undermines the assertion that the sale of Ripple’s systems constitutes an investment contract by supporting Ripple’s position—that XRP investors did not expect to benefit based on the company’s efforts. Deaton therefore feels that the Second Circuit will not overturn the decision.
Featured image from WIRED, chart from TradingView