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SEC contradicts Judge Torres' decision on XRP not being a security, seeks to appeal parts of the ruling

  • The US SEC has taken a stand on Judge Torres's ruling, calling the determination of XRP not being a security as being wrong.
  • According to the commission, such a determination invalidates the Howey test, a ten-year-old formula to distinguish between securities and commodities.
  • Recently SEC Chair cited disappointment in the Court's decision to deem XRP a non-security.

The United States Securities and Exchange Commission (SEC) has finally taken a stand, revealing its position about the partial victory Ripple Labs and the XRP community took home when Judge Analisa Torres the token security only when sold to institutional investors. Demonstrating their contradiction with the Court's determination, the commission says, "The decision does not square with existing security laws."

Also Read: Bitcoin Weekly Forecast: Could spot ETF trigger BTC rally to $50,000?

SEC contradicts Judge Analisa Torres' ruling

The US SEC has challenged the Court's recent decision when the Ripple camp claimed a partial victory against the commission. Based on Judge Annalisa's ruling on July 13, XRP isn't a security provided its sale was to retail investors on exchanges. Otherwise, selling it to institutional investors made it a security.

The news comes as the commission analyzed the SEC vs. Terraform Labs/Do Kwon case after the defendants' legal representatives leveraged XRP's victory to dismiss its own case against the financial regulator. Citing Terre lawyers on the matter:

[Ripple decision] confirms the legal insufficiency of the SEC's argument that certain tokens were securities.

With reference to the petition by Terra lawyers, the SEC has expressed commitment to appeal Judge Torres' summary judgment.

The commission's position on the matter is now clearer, days after SEC Chair Gary Gensler said he was disappointed in the ruling during the National Press Club, which marked his first appearance since Judge Torres' summary judgment.

In the latest development, the commission has revealed its position saying:

 The SEC respectfully avers that Ripple conflicts with and adds baseless requirements to Howey and its progeny. Respectfully, those portions of Ripple were wrongly decided, and this Court should not follow them.

Noteworthy, the Judge in the Kwon case is Jed Rakoff.

Further, the commission cited the Howey Test, challenging that going by such a ruling would violate a ten-year-old formula used to determine whether an asset is a security or a commodity.

… [The ruling] improperly transforms [the Howey Test] into a subjective standard.

Accordingly, the SEC wants the Court to put away the part of the ruling where XRP is deemed a non-security. Notably, a lot rides on the Ripple Labs vs. SEC case as it sets precedence for many other legal battles in the regulatory realm apart from the Terraform Labs and DO Kwon case.

Also Read: XRP ruling puts cryptocurrencies in nuanced position, industry experts weigh in.

Coinbase exchange has an ongoing tussle with the regulator after it labels more than 10 cryptocurrencies on the US-based exchange's catalog as securities. Based on the allegations, the commission claimed that Coinbase operates as an unregistered security exchange. Noteworthy, this was a day after the agency filed related claims against Binance.

Ripple lawyer John E. Deaton's rebuttal to the SEC

Ripple lawyer John E. Deaton has weighed in, referencing "footnote 13" on Judge Torres' summary judgment. In his opinion, even if the appeal panned out, the SEC would have difficulty (even unable) proving the common enterprise factor between Ripple and XRP holders in the secondary market.

Invalidation of the partial win would harm Ripple price, probably just as much as it helped facilitate a 70% climb in market value, much to the dismay of XRP naysayers. Nevertheless, this is crucial in determining regulation in the cryptosphere, with the fates of many altcoins and the interests of many traders and investors lying on balance.

FXStreet team will update you on how or whether the commission's appeal will hold in Court.   

Also Read: SEC vs. Ripple update: Former SEC official explains why Ripple's win could be overturned

SEC vs Ripple lawsuit FAQs

Is XRP a security?

It depends on the transaction, according to a court ruling released on July 14:

For institutional investors or over-the-counter sales, XRP is a security.
For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.

How does the ruling affect Ripple in its legal battle against the SEC?

The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token.

While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.

What are the implications of the ruling for the overall crypto industry?

The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at.

Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say.

Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.

Is the SEC stance toward crypto assets likely to change after the ruling?

The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation.

While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.

Can the court ruling be overturned?

The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.

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