In the ongoing legal battle between Ripple and the US Securities and Exchange Commission (SEC), the regulator filed a “preliminary appeal” yesterday, challenging Judge Annalisa Torres’ ruling. The letter of appeal sparked heated debate among legal experts, with some suggesting that the appeal could indirectly challenge XRP’s status as non-security.
The SEC’s appeal, as described in its latest court filing, seeks to challenge the court’s ruling that Ripple’s “automated” offerings and sales to buyers of XRP via crypto-asset trading platforms and “other distributions” did not include the offering or sale of securities under Howey test. This comes after Judge Torres of the US Southern District Court ruled last month that while Ripple’s direct sales of XRP to institutional investors violated securities law, its automated sales to retail investors through exchanges did not.
A disagreement among legal experts over the intentions of the Saudi Electricity Company in the Ripple case
Jeremy Hogan, a prominent attorney in the XRP community, commented on the appeal, noting that the regulator is not appealing the ruling regarding the fact that XRP itself is not a security. he chirp:
And…the SEC continues to make questionable decisions, asking for preliminary appeals. Note that it is not attractive if XRP itself is a security – only its losses in automated and individual sales issues.
However, retired securities attorney Mark Fagel disagreed with Hogan’s explanation, saying, “I don’t think that’s quite the case. They’re appealing to foreclosure (eg, automated sales didn’t violate Section 5), and as part of that appeal they can challenge the reasoning that led to this comment.” Thus, Fagel argues, the SEC may choose a disingenuous method to avoid ruling that XRP itself is not a security.
But Hogan hit back, stressing that the judge’s reasoning about automated sales not violating Section 5 was separate from her dictating that XRP is not a security. Fagle hasn’t responded to the claim, so it’s not clear if Hogan can convince him.
In another Twitter conversation, cryptocurrency influencer “Moon Lambo” suggested that Torres’ ruling on automated sales of XRP is what led to XRP being non-security and XRP-based crypto exchanges. But Hogan clarified again, “Two separate issues. XRP is not a security. Period. But if the SEC wins the allure of the sales, Ripple can’t use the exchanges to facilitate the sales.”
Meanwhile, the drivers behind the SEC’s appeal are not yet clear. When asked if the SEC’s action was about upholding the law or saving face, Fagel said, “I would have expected an appeal because Ripple’s decision could harm their current initiatives. Their goal should be judicial clarity.” He also acknowledged the significant risk the SEC was taking, stating that a ruling against them by the Second Circuit would be a major blow.
Thus, the SEC’s move to appeal part of the latest decision while other parts of the case proceed to trial has raised eyebrows. The regulator believes that approving the preliminary appeal could prevent the SEC and government from needing two trials.
The XRP community is eagerly awaiting the next steps in this legal saga. Ripple is expected to respond by August 16, 2023, and the SEC has proposed filing an opening brief on August 18.
At the time of publication, XRP was not affected by the SEC filing and was trading at $0.6296.
Featured image from College Transitions, chart from TradingView.com
