Renowned crypto attorney John Deaton, who represents over 75,000 XRP holders, said on July 23 that an SEC appeal will not necessarily change the outcome of Ripple’s decision.
In the ever-changing landscape of crypto regulations, Ripple’s recent decision has raised both hope and uncertainty for the crypto industry. Earlier this week, the US Securities and Exchange Commission (SEC) expressed its intentions to appeal part of the decision, which the agency said was “wrongly decided”.
The SEC takes offense to the part of Ripple’s decision regarding the retail sale of XRP on crypto exchanges. The judge ruled that the retail sale of XRP does not constitute a sale of securities, but the SEC wants to potentially appeal the ruling.
However, Deaton noted in a Tweet that even if the SEC were to file an appeal, it would take about two years before a court ruling would be issued. In the meantime, the Ripple decision handed down by Judge Analisa Torres will continue to be the governing law, at least within the Second Circuit.
The appeal doesn’t guarantee a win for the SEC, Deaton says
Deaton claimed that Ripple would potentially win in court for a second time if the SEC were to proceed with its appeal. According to Deaton’s analysis, even if the Second Circuit potentially disagreed with Judge Torres’ application of the third factor of the Howey Test, that does not guarantee a victory for the SEC.
The four factors of the Howey Test include (1) an investment of money, (2) in a joint enterprise, (3) the expectation of profit (4) derived from the efforts of others. Any asset that checks all four boxes is classified as a security and is regulated by federal securities laws.
Judge Torres ruled that the retail sale of XRP did not meet the third factor of the Howey test because retail investors did not have a reasonable expectation of profit associated with Ripple’s success.
If the 2nd Circuit found that Judge Torres’ application of the third part of the Howey Test was “flawed,” Judge Torres would likely evaluate the remaining two factors of the Howey Test, Deaton said. In that case, Judge Torres could “rule EXACTLY THE SAME WAY” as he did the first time, after finding that the SEC did not meet the common enterprise factor, he added.
It is important to clarify that the Torres Decision is not binding beyond the Southern District of New York (SDNY). While another district judge within the SDNY might disagree with Judge Torres, Deaton argues that such dissent would be less likely within the 2nd Circuit, especially given her citation of Judge Castel’s decision from the Telegram case.
Deaton further pointed to the Coinbase transcript as evidence that the events appear to match Judge Torres’ perspective. It suggests that there is already a trend of consensus within the 2nd Circuit, indicating possible alignment of views with the Torres Decision.
The SEC created a ‘mess’
Ripple CEO Brad Garlinghouse said The SEC has created a “mess” around protecting retail investors by claiming jurisdiction over cryptocurrencies.
“The SEC created this mess by claiming to be the cop on the crypto beat when it had no legal jurisdiction Where did that get us? Consumers left holding the bag in bankruptcy court while the SEC holds press conferences.”
In a Tweet, Ripple’s Chief Legal Officer, Stuart Alderoty pointed out that the SEC’s claim of jurisdiction over crypto is “just a political power play” that “hurts everyone.”