SEC Challenges Ripple XRP Verdict, Indicates Possible Appeal
The U.S. Securities and Exchange Commission (SEC) has been handed a partial victory in its case against Ripple. But the agency's recent documents suggest it perceives this as a flawed judgment that it might contest.
In a lawsuit against Terraform Labs and its CEO Do Kwon, the SEC referenced the Ripple decision late last Friday, asserting the judgement was erroneous and potentially appealable.
New documents, filed by the SEC in the ongoing Terraform Labs case, hint towards a probable appeal against the Ripple verdicts. A federal judge had earlier ruled that while Ripple did not breach securities laws by offering its native token, XRP, to individual investors, it infringed upon the law in its dealings with institutional investors.
Terraform's legal representatives had earlier this week argued that the Ripple verdicts substantiate their defense and bolster their plea for case dismissal via a filing made on the 18th of July 2023.
At the heart of the debate is the Howey test, a legal benchmark used to determine if a financial instrument qualifies as an investment contract and is thus subject to SEC oversight.
The documents read, "In contrast to Ripple's claims, much of the judgement bolsters the SEC's allegations in this case", underlining that Ripple's activities clash with the Howey test. The document further states, “Parts of the Ripple ruling were incorrectly decided, and this court should not adhere to them."
In the latest filings against Terra and Do Kwon, the SEC asserts that the judge in the Ripple case should retract recent rulings concerning XRP's retail sales. It alleges that Ripple "fabricates a false distinction between the expectations of savvy institutional and retail investors." If such a distinction persists, the SEC contends, it upends the Howey test.
Even if the "mixed bag of alleged factual disparities" were of substance, the SEC argues, the Ripple case favours the SEC's stance.
"The court must draw reasonable inferences in favor of the SEC, including the notion that the institutional buyers in this case—trading firms that acquired [Ripple's] crypto assets with no resale restrictions—bought them viewing them as an investment opportunity into Terraform's efforts."
Terraform Labs and CEO Do Kwon have been entangled in a legal dispute with the SEC since the beginning of the year following the company's collapse. The litigation is detrimental, especially after Terra's stablecoin UST lost its peg, dragging a $40 billion platform comprising retail and institutional investors along with it.
In conclusion, the SEC stated, “The underlying rationale of the Ripple ruling is fundamentally disconnected from the core principles of the Howey test and federal securities laws at large.