The news of Ripple’s recent partial victory against the SEC after a nearly three-year legal battle sent a wave of joy throughout the crypto industry. However, according to according to a legal expert on Twitter, attorney Bryan Jacoutot, the win could be short-lived as SEC has plenty of grounds to appeal the decision and drag this thing out for much longer.
The SEC’s lawsuit against Ripple Labs
The SEC filed a lawsuit against Ripple Labs in December 2020, alleging that Ripple executed an unregistered securities offering worth more than $1.3 billion through the sale of XRP. According to the SEC, XRP is a security under federal securities laws. But the court ruled on June 13 that the arbitrary “programmatic sale” of XRP to mainstream investors is not the sale of an unregistered security under Howey.
However, sales to institutional investors fall under Howey, which is used in the United States to determine whether a transaction qualifies as an investment contract. In this case, the court ruled that the buyers had no way of knowing who sold them the XRP, unlike the institutional investors who would expect Ripple Labs to use the capital for the betterment of the Ripple ecosystem.
According to Jacoutot, the Court’s reasoning is weak and Howey was misapplied in the case. The court reasoned that mainstream investors bought XRP fully knowing that it is subject to general cryptocurrency market trends, particularly the secondary sale of XRP tokens. However, Jacoutot believes those buying XRP also expected to profit from Ripple Labs’ efforts.
XRP price at $0.7254 | Source: XRPUSD on Tradingview.com
The lawyer also made one case of the Ethereum Foundation, as everyone who participated in the ETH pre-sale knew they were buying from Ethereum Foundation. Looking at the XRP ruling in a similar way, it would mean that institutional investors of the ETH pre-sale also bought unregistered securities.
What does the statement mean?
According to Jacoutot, the ruling opens some loopholes that can be exploited. In a tweet by attorney Joe Carlasare on Twitter, it explains that the logic of the ruling leaves an opening that could be used to legally launch a pyramid scheme. In this case, the profits from the “programmatic sales” to retail investors can be distributed to institutional investors.
Ripple CEO Brad Garlinghouse has said the ruling provided relief and that the company could now promote the various use cases for Ripple and its technology without worrying about legal ramifications.
This is definitely a victory for Ripple, but an SEC appeal could drag the legal battle on for years and spark another round of major uncertainty in the crypto market.
The price of XRP skyrocketed after the ruling. It is now up 50% this month and is currently trading at $0.7154.
Featured image from Bit2Me Academy, chart from Tradingview.com
