Renowned crypto advocate John Deaton, representing over 75,000 XRP holders, said on July 23 that an SEC appeal will not necessarily change the outcome of the Ripple ruling.
In the ever-changing landscape of crypto regulation, the recent Ripple ruling has created hope and uncertainty for the crypto industry. Earlier this week, the U.S. Securities and Exchange Commission (SEC) expressed its intention to appeal part of the decision, which the agency said was “misruled.”
The SEC takes offense to the part of the Ripple ruling regarding the retail sale of XRP on crypto exchanges. The judge ruled that the retail sale of XRP was not a sale of securities, but the SEC may want to appeal the ruling.
However, Deaton noted in a Tweet that even if the SEC did appeal, it would take about two years for the court to make a decision. In the meantime, Judge Analisa Torres’ Ripple ruling remains the prevailing law, at least within the 2nd Circuit.
Appeals do not guarantee SEC victory, Deaton says
Deaton claimed Ripple could potentially win in court for a second time if the SEC went ahead with its appeal. According to Deaton’s analysis, even if the 2nd Circuit may have disagreed with Judge Torres’ application of the third factor of the Howey test, this 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 venture, (3) the expectation of profit (4) derived from the efforts of others. Any asset that meets all four boxes is classified as a security and is subject to federal securities laws.
Judge Torres ruled that XRP’s retail sales failed to meet the third factor of the Howey test because private investors did not have a reasonable profit expectation associated with Ripple’s success.
If the 2nd circuit rules that Judge Torres’ application of the third tooth of the Howey test is “wrong,” Judge Torres would likely review the remaining two factors of the Howey test, Deaton said. In that case, Judge Torres could “rule EXACTLY THE SAME WAY” as the first time, after finding the SEC failed to meet the common enterprise factor, he added.
It is important to clarify that the Torres decision is not binding outside of the Southern District of New York (SDNY). While a fellow district judge within the SDNY could potentially 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 ruling from the Telegram case.
Deaton further pointed to the Coinbase transcript as evidence that the events seem to match Judge Torres’s perspective. He suggests that there is already a consensus trend within the 2nd circuit, pointing to possible agreement of positions with the Torres decision.
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 proclaiming it was the agent on the crypto beat when it had no legal jurisdiction. Where has that brought us? Consumers left with the bag in bankruptcy court as the SEC holds press conferences.
In a Tweet, Ripple’s chief legal officer Stuart Alderoty noted that SEC claiming jurisdiction over crypto is “just a political power play” that “hurts everyone.”