The U.S. Securities and Exchange Commission (SEC) has announced its intention to appeal a recent court ruling regarding Ripple Labs. This move signifies a setback in the agency’s attempts to regulate the cryptocurrency market.
In a Wednesday letter, the SEC formally requested U.S. District Judge Analisa Torres in Manhattan to permit a federal appeals court to review her decision from July 13. In that decision, Judge Torres concluded that the sale of Ripple’s XRP digital token on public exchanges adhered to federal securities laws.
Reason for Appeal
The SEC’s appeal is based on its belief that legal matters with room for differing interpretations are at play, making it necessary to seek further clarification. The outcome of this appeal is deemed crucial not only for the SEC’s ability to enforce securities regulations but also for its implications on numerous other lawsuits involving similar issues.
For years, the SEC has maintained that digital assets like cryptocurrencies should be classified as securities, akin to stocks and bonds and that the agency holds the authority to oversee and regulate them. This stance prompted the SEC to file a lawsuit against Ripple, its CEO Brad Garlinghouse, and co-founder and Chairman Chris Larsen in December 2020. The lawsuit accused them of conducting an unregistered securities offering by selling XRP and raising over $1.3 billion.
Judge Torres’ ruling was a partial victory for Ripple, as she concluded that the sale of XRP on public exchanges did not violate securities laws since buyers did not have a reasonable expectation of profit based on Ripple’s efforts. However, another U.S. District Judge, Jed Rakoff, reached the opposite conclusion just 18 days later, ruling that the Terra USD token offered by Terraform Labs was indeed a security when sold on public exchanges.
While Judge Torres ruled in favour of Ripple on some points, she did find them in violation of securities laws for selling XRP to institutional investors.
Ultimately, it is up to Judge Torres to decide whether to allow the SEC’s appeal and temporarily pause the case. Neither Ripple nor its legal representatives, including Brad Garlinghouse and Chris Larsen, have responded to requests for comments on this matter.
Crypto Settlements Trend
The SEC, under the leadership of Gary Gensler, has taken significant actions against over 100 entities related to cryptocurrency, though many of these cases have been resolved through settlements. Gensler’s tenure has also been marked by efforts to curb speculative behaviour in the cryptocurrency sector, which he believes erodes investor confidence in U.S. financial markets.
It’s important to note that while these developments impact the Ripple case and related issues, they do not directly affect the separate SEC lawsuit against Coinbase, the largest U.S. cryptocurrency platform, for alleged illegal operations due to its failure to register as an exchange. Additionally, the SEC is pursuing legal action against Binance, the world’s largest cryptocurrency platform.