The ongoing legal saga between Ripple Labs and the US Securities and Exchange Commission (SEC) is intensifying as speculation grows about a potential appeal from the SEC. This comes after Judge Analisa Torres rendered a landmark decision in July 2023, finding that Ripple’s programmatic sales of XRP to ordinary investors did not breach securities laws. The SEC, however, is apparently not happy with this ruling, especially considering its implications for future regulatory proceedings.
The Potential Appeal of the SEC
Journalist Eleanor Terrett of FOX Business recently shared insights from a former SEC attorney who believes the agency will likely file an appeal of the decision. Many within the SEC reportedly think the ruling has fundamental flaws and should be overturned. There is additional urgency since October 7 is the deadline for filing such an appeal.
🚨NEW: A former @SECGov lawyer who recently left the agency tells me the SEC will ‘probably’ appeal Judge Torres’s July 2023 ruling concerning the $XRP programmatic sales in the @Ripple case partly because: “everyone over there [at the SEC] truly believes that the decision is… — Eleanor Terrett (@EleanorTerrett) September 26, 2024
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The SEC would probably be more interested in reversing the portion of the order that deals with XRP programmatic sales than in challenging Ripple’s $125 million fine. Marc Fagel, a former attorney for the SEC, has also commented, stating that in the event of an appeal, it will primarily focus on how these programmatic sales were determined to comply with securities laws. This strategic emphasis could significantly impact future cryptocurrency regulations. Experts like lawyer Fred Rispoli estimate a 75% chance that the SEC will proceed with an appeal.
Ripple’s Response and Market Reactions
Despite these developments, Ripple’s leadership remains confident. CEO Brad Garlinghouse and Chief Legal Officer Stuart Alderoty have publicly stated that they do not plan to appeal the court’s decision, indicating their belief that the matter is resolved. They argue that further legal disputes could jeopardize capital formation and investor trust, two critical aspects of the SEC’s mandate.
This uncertainty has led to volatile movements in XRP’s market price. Although the changes remain minor, XRP’s price is currently around $0.59, far from any significant deviation from recent highs. As traders await clarity, trading volumes have dropped due to the prospects of a potential appeal.
US Senate Candidate: Appeal Will Fail
Meanwhile, Atty. John Deaton, a candidate for Massachusetts Senate, has offered his opinions on the Ripple issue, expressing belief that an appeal of the ruling would not be successful. Deaton, who played a crucial role in Ripple’s legal victory regarding programmatic sales, thinks the Second Circuit Court is unlikely to reverse the decision.
His viewpoint is based on the application of the Howey Test, where he notes the judge focused on just the third prong—that of the “expectation of rewards based on the efforts of others.” Deaton cited affidavits from 3,800 XRP holders, which Judge Torres appropriately considered in her ruling. These testimonials undermined the assertion that Ripple’s programmatic sales constituted an investment contract by supporting Ripple’s position that XRP investors did not expect gains based on the company’s efforts. Deaton is confident that the Second Circuit would not overturn the decision.
