The legal battle between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs, the company behind the XRP cryptocurrency, has taken a new turn as the SEC filed a reply to Ripple’s opposition to its motion for interlocutory appeal. The motion seeks to challenge a ruling by Judge Analisa Torres that found XRP was not a security when sold to retail investors on crypto exchanges.
SEC argues for appellate review of legal questions
The SEC claims that the ruling by Judge Torres involves two important and novel questions of law that warrant an immediate review by the Second Circuit Court of Appeals. The first question is whether the Howey test, which determines whether an asset is an investment contract and thus a security, applies to programmatic sales of digital assets on trading platforms. The second question is whether the SEC has to prove that each individual sale of XRP by Ripple or its affiliates involved an offer of securities.
The SEC contends that these questions have industry-wide significance and are of special consequence, as they affect the SEC’s ability to regulate the crypto market and protect investors from fraud. The SEC also cites a conflicting opinion by Judge Jed Rakoff in a similar case involving Terraform Labs, where he rejected Judge Torres’ legal conclusion that blind trading platform-based transactions preclude the application of Howey.
Ripple accuses SEC of hypocrisy and delay tactics
Ripple, on the other hand, argues that the SEC’s motion for interlocutory appeal is baseless and premature, as it does not meet the criteria for certification. Ripple asserts that the ruling by Judge Torres did not involve any controlling case law or substantial grounds for difference of opinion, as it was based on the specific facts and circumstances of the case. Ripple also claims that an interlocutory appeal would not materially advance the termination of the case, but rather prolong it unnecessarily.
Ripple accuses the SEC of hypocrisy and inconsistency, as it previously opposed Ripple’s motion to dismiss the case on the grounds that it raised factual issues that could not be resolved without discovery. Ripple also alleges that the SEC’s real motive is to delay the case so that it can continue its “regulation by enforcement” agenda and harm Ripple’s business and reputation.
What’s next for the XRP case?
The next step in the case is for Judge Torres to decide whether to grant or deny the SEC’s motion for interlocutory appeal. If granted, the motion will allow the SEC to present its arguments before the Second Circuit Court of Appeals, which will have the final say on the legal issues raised by the motion. If denied, the case will proceed to trial in the district court, where both parties will have to prove their claims and defenses based on the evidence.
The outcome of the motion could have significant implications for the crypto industry, as it could set a precedent for how digital assets are classified and regulated by the SEC. The XRP case is one of the most high-profile and complex lawsuits involving crypto assets, as it involves billions of dollars worth of transactions and millions of investors worldwide.