- Judge Analisa Torres strictly applied the Howey Test to each type of XRP sale where the SEC claimed Ripple violated the securities law.
- Attorney John Deaton argues that the SEC has lost the SEC vs Ripple lawsuit and it is unlikely that Judge Torres' decision be reversed by the Second Circuit.
- The Torres Doctrine is that the court holds that a common enterprise exists between Ripple and institutional buyers, this does not affect XRP holders.
Pro-XRP attorney evaluated Judge Analisa Torres’ decision on the SEC vs Ripple lawsuit. Attorney John Deaton believes that it is unlikely that the Second Circuit Court of Appeals will overturn Judge Torres’ decision.
FXStreet has covered XRP and the SEC vs Ripple lawsuit here:
- XRP update: To buy or not to buy XRPLedger’s native token after SEC vs Ripple ruling
- SEC vs. Ripple update: Former SEC official explains why Ripple’s win could be overturned
- US Congressman Ritchie Torres calls out SEC Chair Gary Gensler over crypto assault, cites Ripple's victory
Judge Torres’ historic ruling in SEC vs Ripple case unlikely to be reversed
Pro-XRP attorney John Deaton analyzed Judge Torres’ ruling, more popularly known as the Torres Doctrine in a recent YouTube video. Deaton notes that the Torres Doctrine is simply an application of a 1946 test to modern-day blockchain technology. Judge Torres applied the Howey Test to each type of XRP sale in the SEC vs Ripple lawsuit.
The SEC alleged that payment giant Ripple violated securities law by the sale of unregistered securities (XRP in this case). However, Judge Torres’ found that XRP is not an investment contract or security in itself.
According to the Howey Test, it is immaterial whether XRP is a speculative or non-speculative asset or whether it has intrinsic value. Judge Torres’ ruling is that institutional sales satisfied all factors of the Howey Test, while programmatic sales on exchanges did not satisfy all factors of the test.
Deaton argues that Judge Torres simply applied a clear test to undisputed case facts of SEC vs Ripple and the case could get remanded if the Second Circuit gets the judge to reverse the decision.
The footnotes from SEC vs Ripple ruling
Deaton explains that if the Second Circuit Court of Appeals reverses Judge Torres’ ruling, the Judge could get the case back and cite that the common enterprise factor is not satisfied between XRP holders and Ripple or she could rule consumptive intent is an issue for the jury since the SEC’s expert’s opinion was excluded.
“THE TORRES DOCTRINE” AS IT HAS BEEN CALLED IS SIMPLY A STRICT APPLICATION OF A 1946 TEST TO MODERN DAY BLOCKCHAIN TECHNOLOGY.
— John E Deaton (@JohnEDeaton1) July 19, 2023
Judge Torres did a strict application of the Howey Test to each type of #XRP sale the SEC claimed violated the law. https://t.co/bqel8bGIMK
This makes the common enterprise a difficult hurdle for the SEC here. Watch attorney Deaton’s analysis here:
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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