The United States Securities and Exchange Commission (SEC) has revealed its intention to challenge a recent court ruling that determined XRP, a cryptocurrency, may not inherently qualify as a security. In response, the agency is seeking an interlocutory appeal, aiming to secure a review of the court’s decision while the case remains ongoing.
SEC seeks interlocutory appeal in the XRP lawsuit
The move by the regulatory body overseeing financial matters in the country is in response to a ruling made by Judge Analisa Torres last month. Judge Torres concluded that certain sales of XRP by Ripple Labs to the general public and distributions to its employees did not constitute the sale of unregistered securities. However, it was determined that sales of XRP to institutions were considered the sale of unregistered securities. The body’s appeal does not pertain to the classification of XRP as a security but rather to it perceived losses concerning programmatic and individual sales.
Programmatic sales refer to scheduled XRP sales by Ripple Labs on cryptocurrency exchanges. This regulatory move highlights the agency’s concern that the issues raised in the case may have broader implications for a range of its actions. XRP experienced a slight decline in value following its announcement. The cryptocurrency’s value dropped by approximately 1% to around $0.63, according to data from CoinGecko.
Despite this minor dip, XRP managed to achieve a 33% increase in value over the past month. This development is the latest twist in a prolonged legal battle between Ripple and the SEC, which began with the agency’s lawsuit against Ripple Labs in 2020. The SEC accused Ripple, CEO Brad Garlinghouse and executive chairman Chris Larsen of raising $1.3 billion through the unregistered sale of XRP, which the agency considered to be an unregistered security.
Implications of the appeal as the legal battle continues
In response to the body’s decision to appeal, legal experts have noted that this should not be seen as a setback for Ripple’s legal victory. Despite the appeal, Judge Torres’ ruling stands as the law of the land for the time being. Moreover, other arguments exist suggesting that the sale of XRP should not be categorized as a security under the Howey Test—a legal benchmark established by the Supreme Court to determine whether something qualifies as an “investment contract” and thus a type of security under federal law.
While the SEC’s position remains consistent, indicating its displeasure with elements of the court’s decision, the regulatory agency has maintained its stance on the matter. Gary Gensler, the Chair of the body, expressed disappointment with certain aspects of the court’s ruling. Subsequently, the regulatory agency referred to the case as “wrongly decided” in a subsequent lawsuit against Terraform Labs and its CEO Do Kwon.
However, some fractures within the Southern District of New York have become apparent, as Judge Jed Rakoff declined to extend Judge Torres’ reasoning to the agency’s case against Terraform Labs and Kwon. This division within the district underscores the existence of significant differences of opinion on the matter.
In light of the ongoing legal proceedings and the potential implications for various cases, the body’s decision to pursue an interlocutory appeal aims to establish clarity on the regulatory status of XRP. This move reflects the complexity and broader significance of the issues at hand. As the legal process unfolds, the fate of XRP and its classification within the realm of securities will continue to be closely watched by both the cryptocurrency industry and the regulatory landscape.
