Key takeaways:
- The Ripple Labs lawsuit resulted in a decision that XRP was not a security when marketed to retail investors.
- According to Judge Analisa Torres’ ruling from July, XRP is generally not considered a security under SEC regulations.
The Ripple Labs lawsuit resulted in a decision that XRP was not a security when marketed to retail investors. The US Securities and Exchange Commission has filed a document asking the Court to allow its petition to appeal.
The agency said that the Court’s use of the law, notably the Howey Test, has “knotty legal problems” that call for revision.
In a document filed on September 8, the SEC requested that the Southern District of New York’s US District Court grant its move for interlocutory appeal and “stay further proceedings until the resolution of that appeal.”
Because the questions addressed by the Court’s order on summary judgment provide precisely the kinds of “knotty legal problems” that motivated “Congress to provide for interlocutory review,” the SEC asks for certification for appellate review.
According to Judge Analisa Torres’ ruling from July, XRP is generally not considered a security under SEC regulations, primarily when sold through programmatic channels.
The SEC said in its most recent filing that the agency’s interlocutory appeal should be granted because the decisions about programmatic sales and other distributions raise “legal questions” that are serious enough to warrant the Court’s consideration.
The SEC noted court proceedings from other cases to show that this is due to a legal grey area about whether some crypto assets fit under the definition of investment contracts via the Howey Test. SEC declared:
“While interlocutory appeal should be the exception, not the rule, this is the unusual case where the Defendants themselves say that the issues have industry-wide significance and are of special consequence, and thus is precisely the type of case as to which the Second Circuit has invited interlocutory appeal.”
However, these opinions appear to be at odds with earlier ones made by the agency and its chairman, Gary Gensler.
Gensler has repeatedly vehemently denied the necessity for additional crypto regulation, arguing that the SEC already has clear rules that fully cover the full breadth of the crypto business. According to this point of view, most cryptocurrencies now traded on the market qualify as securities.
Stuart Alderoty, the chief legal officer of Ripple, referred to the filing as “hypocritical” in a tweet on September 8 as he pointed out that:
“After years of its chairman saying the ‘rules are clear and must be obeyed’ the SEC now cries that an appeal is urgently needed to resolve these ‘knotty legal problems’.”
Paul Grewal, the chief legal officer of Coinbase, also weighed in, asking how cryptocurrency companies can be on “fair notice” if there are complex legal issues that need to be resolved in Court.
In August, the SEC made its initial appeal and stay request, claiming that there was “substantial ground for differences of opinion.”
Ripple Labs retaliated on September 1 by submitting a memorandum of law in opposition, contending that the SEC lacked sufficient justification for its appeal request.
