The future of U.S. crypto regulation could hinge on a long-awaited decision by Wall Street’s top cop on whether to appeal a ruling from its high-profile legal battle with blockchain payments company Ripple.
The Securities and Exchange Commission has until October 7 to decide whether it will challenge U.S. District Judge Analisa Torres’ July 2023 ruling that only some of Ripple’s sales of the XRP crypto token violated securities laws, a move that drew criticism from the securities industry. lawyers and other federal judges.
That said, the ruling is seen as a major legal victory for the still-nascent crypto industry, as it attempts to prove that the emerging asset class does not violate U.S. securities laws, as the DRY. It has also become a cornerstone of the legal strategies of other crypto entities such as exchanges Coinbase, Binance and Kraken, which are currently being sued by the commission for allegedly selling unregistered securities.
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That’s why former SEC lawyers who spoke with FOX Business say an appeal is likely, as the agency and its crypto-skeptic president, Gary Gensler, are determined to assert jurisdiction over an industry of 2 trillion dollars and do not want to approve a dual disclosure system that the Torres opinion could create in the securities markets.
“I think the SEC will appeal. I think they wouldn’t want the programmatic trading analysis to stand,” said Marc Powers, a blockchain professor at Florida International University College of Law and a former blockchain attorney. enforcement at the SEC. “This creates inconsistencies in the decisions of district court judges and the Second Circuit.”
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Press representatives from the SEC and Ripple declined to comment for this story.
The SEC already signaled its intent last year when it filed a so-called interlocutory appeal (an emergency appeal filed before summary judgment) to challenge Torres’ decision. Torres denied the request but said the SEC could try again after summary judgment.
Disclosure is the foundation of state securities laws. When a company sells stock to raise capital and expand operations, it is required to file numerous documents that provide investors with the information they need to evaluate whether to purchase stock. Some legal experts say Torres’ decision upended that disclosure mandate.
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Its ruling indicated that Ripple’s $728 million in sales of XRP to institutions were securities transactions because the institutions purchased the tokens directly from Ripple, thereby entering into an investment contract, a key condition of the Howey test which is used to determine whether an asset is an asset. security. However, the sales to retail investors – because they were purchased through exchanges and not directly through Ripple – did not satisfy the terms of Howey’s investment contract, thereby disqualifying them as securities.
This logic is controversial because, some securities lawyers say, it leaves the door open to retail investors who do not benefit from the same oversight that institutional investors enjoy. Retail investors, for example, buy stocks on the secondary market and use public information to make bets on the market.
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Torres’ summary judgment was issued in August and required Ripple to pay a $125 million fine for its institutional sales of XRP. Earlier this month, Ripple requested a suspension of penalty payment to the SEC, leading some crypto observers to believe this could be a signal that Ripple is preparing for the SEC to appeal.
“What we disagree with Judge Torres is that there is no need to create two categories of people, because whether you are sophisticated or not, at the end of the day you are still buying the same token,” SEC lawyers noted in January. pleadings for its lawsuit against Coinbase.
Another SEC lawyer who left the agency to join private practice earlier this year believes that widespread opposition to the decision within the SEC will be a determining factor in a possible appeal.
“Everyone there sincerely believes that the decision is wrong, that it is not good law and that it should be appealed,” said the lawyer, who spoke under condition of anonymity. “I think most securities lawyers, regardless of their views on crypto, would agree that this was not a very popular decision.”
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But lawyers representing the crypto industry disagree. They say it would be a waste of the agency’s already limited resources to appeal a single issue in a case so large that it has a reasonable chance of losing.
“Of course the SEC thinks that view is wrong — they were on the losing side,” said Jeremy Hogan, a partner at the law firm Hogan & Hogan and a frequent commentator on the Ripple case. “What the SEC should be thinking about right now is whether an appeal furthers its mandate of investor protection and capital formation.”
The agency has faced criticism from lawmakers, and even some on its own staff, that it is wasting resources on aggressive crypto enforcement against good actors when it could be helping investors in other areas.
Hogan explains that because the Ripple case involves a fixed set of facts and circumstances that don’t just pertain to programmatic sales of XRP, it may not be the wisest case for the SEC to appeal if it seeks to deal directly with these sales.
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“The Coinbase and Binance cases appear more relevant to current enforcement priorities and will address secondary sales in a more direct manner,” said Marc Fagel, a former SEC attorney and crypto critic. “Ripple is just a single issuer, while exchanges present much broader systemic risk to investors and the legal landscape is much more uncertain.”
“Nevertheless, the Ripple decision on programmatic sales is problematic for the SEC, even outside of the exchange context,” he added.
The former SEC lawyer, who wished to remain anonymous, echoed Fagel’s sentiments.
“The agency needs to decide which is the best case to go to the Second Circuit – is it the Ripple case, or should the SEC hold off for now and wait for an exchange case like Coinbase to appeal, what who would have a better chance of bringing the issue of secondary sales directly to court?
Coinbase is still in the discovery phase of litigation with the SEC after the agency sued the largest crypto exchange in the United States last year. Depending on the legal types, an appeal could take years.
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Original article source: Deadline Approaches for SEC to Appeal Ripple Decision: Will It Do It?
