SEC appeal not a ‘setback’ for Ripple XRP decision, says crypto lawyer
An appeal by the Securities and Exchange Commission (SEC) in its case against Ripple Labs does not represent a significant blow to Ripple’s recent courtroom victory, according to crypto lawyer John Deaton.
“An appeal is not even close to a setback,” Deaton so, pushing back against a demand made on Twitter. “Don’t let anyone underestimate how important this win is.”[ads1];
Deaton’s comments came after Federal District Judge Analisa Torres ruled earlier this month that XRP, the token that powers Ripple’s payment network, “is not necessarily a security on its face” — except in cases where it was sold to institutions to raise money.
Ripple has been engaged in a legal battle with the SEC since 2020, when the regulator accused Ripple to raise $1.3 billion in unregistered securities offering.
SEC Chairman Gary Gensler has so that he is “disappointed” with aspects of the decision, which could have far-reaching implications for other tokens facing regulatory heat. Court documents filed by the federal watchdog on Friday in its case against Terraform Labs proposed an appeal in the Ripple case may come soon.
Even then, it will take a long time for the appeal to work its way through the court system, according to Deaton, the founder of Crypto Law.
“It will be two years from now before a decision is issued by the Second Circuit,” Deaton said. “The Torres decision is the law until then.”
Torres ruled that programmatic sales of XRP to public buyers failed to meet the Howey test — a methodology used to determine whether an investment contract exists when selling an asset — because there was not “a reasonable expectation that profits would derive from the entrepreneurial or managerial efforts of others.”
Public buyers of XRP did not know they were buying the token from Ripple due to the structure of programmatic sales, which prevents any expectation of profit from being tied to Ripple’s efforts, Torres explained in her decision.
“It may certainly be the case that many programmatic buyers bought XRP with an expectation of profit, but they did not derive that expectation from Ripple’s efforts,” Torres said. “None of the programmatic buyers were aware that they were buying XRP from Ripple.”
Even if the SEC succeeds in challenging Torres’ application of the Howey test on this front, Deaton explained, Torres could still rule the same way when looking at the Howey test’s other factors, such as “investment of money” and the existence of a “joint enterprise.”
That would only present a greater challenge to the SEC, Deaton argued. It is much more difficult for the SEC to satisfy that a joint enterprise existed under the Howey test as opposed to an expectation of profit from the efforts of others, he said.
Ripple CEO Brad Garlinghouse, who called the Torres ruling “an unequivocal victory for Ripple and for crypto in the United States,” separately picked on the SEC’s efforts to be the lead regulator of digital assets.
“The SEC created this mess by proclaiming it was the cop on the crypto beat when it had no legal jurisdiction,” he tweeted. “We all know that legislation – not more regulation by enforcement – is the only way forward to provide clear rules and protect retail.”
“A securities agency only has jurisdiction over securities – no collateral, no role for the SEC,” replied Ripple Chief Legal Officer Stuart Alderoty. “Pretending to have jurisdiction when there is none is simply a political power play. It helps no one; it hurts everyone.”
