The Securities and Exchange Commission (SEC) appeal in the Ripple Labs case doesn’t deal a significant blow to Ripple’s recent courtroom victory, as per crypto attorney John Deaton.
Deaton pushed back against a Twitter claim, stating, “An appeal isn’t even remotely a setback. Don’t underestimate the importance of this win.”
Ripple has been in a legal battle with the SEC since 2020, when the regulator accused Ripple of conducting $1.3 billion in unregistered securities offerings.
SEC Chair Gary Gensler expressed disappointment with certain aspects of the decision, potentially carrying extensive consequences for other tokens facing regulatory scrutiny. The federal watchdog’s court documents filed on Friday in the Terraform Labs case hinted at a possible appeal in the Ripple matter.
Nevertheless, Deaton, the founder of Crypto Law, explained that it would take a substantial amount of time for the appeal process to unfold within the court system.
“The 2nd Circuit won’t issue a decision until two years from now,” Deaton predicted. “The Torres Decision holds sway until then.”
Torres ruled that programmatic sales of XRP to the general public didn’t fulfill the Howey Test, a method to determine if an investment contract applies to the sale of an asset. This was because there was “no reasonable expectation of profits derived from others’ entrepreneurial or managerial efforts.”
Torres elucidated in her decision that public XRP buyers weren’t aware they were acquiring the token from Ripple due to the structure of programmatic sales. Hence, there was no anticipation of profit linked to Ripple’s endeavors.
“While many programmatic buyers may have purchased XRP with profit expectations, they didn’t base this expectation on Ripple’s actions,” Torres clarified. “None of them knew they were purchasing XRP from Ripple.”
Even if the SEC challenges Torres’ application of the Howey Test on this aspect, Deaton explained that Torres might still uphold the same stance when assessing other factors of the Howey Test, such as “investment of money” and the presence of a “common enterprise.”
According to Deaton, this would pose a greater challenge for the SEC. Proving the existence of a common enterprise under the Howey Test is much more difficult compared to showing an expectation of profit from others’ efforts.
“The SEC created this confusion by positioning itself as the crypto regulator without legal jurisdiction,” he tweeted. “Legislation, not increased regulatory enforcement, is the only way to establish clear rules and safeguard retail investors.”
Ripple’s Chief Legal Officer Stuart Alderoty responded, saying, “A securities agency’s jurisdiction only covers securities. If there’s no security, there’s no role for the SEC.” He labeled the attempt to claim jurisdiction where none exists as a political power move that harms everyone and benefits no one.
