Another lawsuit rebutted the ruling
The U.S. Securities and Exchange Commission (SEC) has argued that the federal district court’s ruling on the securitization of XRP was flawed in its Terraform Labs lawsuit, citing precedents from the cryptocurrency XRP case, suggesting the possibility of an appeal against Ripple.
connection:“The virtual currency XRP itself is not a security,” US district court rules
In February, the SEC sued Terraform Labs and its founder, Do Kwon, for securities fraud. Terraform’s attorneys argued in court filings Tuesday that Ripple’s ruling strengthened defendants’ arguments and supported their motion to dismiss the lawsuit.
connection:SEC sues former Terra founder Do Kwon for securities fraud
In response to Terraform’s allegations, the SEC responded in a new court filing on the 21st, stating, “Many of Ripple’s decisions support the SEC’s claims in this case and deny the allegations made by the defendants in this case.”
U.S. District Court (Southern District Court of New York) Judge Annalisa Torres ruled on the 13th that Ripple’s sale of XRP to institutional investors violated U.S. securities laws, but its sale to general investors via a cryptocurrency exchange did not amount to a sale of securities.
The SEC said the ruling on the sale of XRP (programmatic sale) and other sales to the public was “erroneous” and “adds additional requirements that are inconsistent with and unfounded in the Howie test and its case law.” The court argued that such precedents should not be followed.
Ripple’s analysis of programmatic sales is at odds with Howie and decades of federal securities law jurisprudence.
What is Howie Test
A test to determine whether a particular transaction in the United States constitutes a securities transaction under an investment contract. Derived from the SEC lawsuit against WJ Howie. Although not legally binding, the SEC has filed lawsuits against cryptocurrency brands and services based on the Howie test. Specifically, it is a test to determine whether it is raising funds, whether it is a joint venture, whether it is expecting profits, and whether profits are due to the efforts of others. Some say that the Howie test is not suitable for the new asset of virtual currency.
“The logic underlying Ripple’s ruling is a far cry from Howie and the fundamental principles of federal securities law,” the SEC said. The SEC is “considering various options available for further review,” it said, suggesting it may appeal.
SEC Chairman Gensler said Wednesday that he was “disappointed” that the district court did not consider the sale of XRP to retail investors a securities transaction. “This decision is under scrutiny and consideration (including possible appeals),” he added.
connection:SEC Chairman Gensler Makes First Comments on Ripple Trial Ruling
Impact of SEC appeals
With the SEC likely to appeal the district court’s XRP ruling, Crypto Law founder and cryptocurrency attorney John Dayton points out that even if the appeal were to materialize, it wouldn’t set back XRP.
An appeal is not even close to be a setback. First, it will be two years from now before a decision is issued by the 2nd Circuit, if it’s appealed. The Torres Decision is the law until then – at least in the 2nd Circuit. Second, even if the 2nd Circuit said Torres was wrong… https://t.co/GzW31D9edQ
—John E Deaton (@JohnE Deaton1) July 22, 2023
Dayton said the court of appeals will take about two years to issue a ruling, so until then the current jurisprudence will be respected. He argued that even if the court of appeals found that the application of the third Howie test requirement, which was the basis for the decision, was incorrect, the same judgment would likely have been reached by applying the other requirements of the test.
Let no one underestimate how important this win is to XRP, XRP holders and Ripple.
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