On October 3, 2022, a federal judge denied the U.S. Securities and Exchange Commission’s (SEC) request to appeal her ruling regarding Ripple Labs. The decision by U.S. District Judge Analisa Torres in Manhattan has been viewed as a significant setback for the SEC in its attempt to regulate and oversee cryptocurrency markets.
In July 2022, Judge Torres had ruled that the sale of Ripple’s XRP digital token on public exchanges complied with federal securities laws. She determined that purchasers had no reasonable expectation of profit based on Ripple’s efforts, therefore negating the need for the token to be classified as a security.
The SEC sought permission to appeal Torres’ findings on “programmatic” sales of XRP and other distributions of the token as a means of payment for services. The SEC argued that an appeal would be crucial in resolving a large number of related lawsuits. However, Judge Torres found no substantial ground for debate on her rulings and concluded that an appeal would not significantly advance the case.
Furthermore, Judge Torres stated that her decision did not conflict with a ruling by U.S. District Judge Jed Rakoff in Manhattan, who opined that the SEC had a plausible claim that Terraform Labs’ Terra USD token was a security when sold on public exchanges. Judge Torres clarified that Judge Rakoff had been considering a motion to dismiss the SEC case and was required to accept all reasonable inferences in the regulator’s favor.
The Ripple case is scheduled for trial on April 23, 2024. In December 2020, the SEC filed a lawsuit against Ripple, accusing the company of illegally raising over $1.3 billion through an unregistered securities offering by selling XRP. The SEC claims that many digital assets, including XRP, are securities and should be subject to regulation.
The SEC has filed lawsuits against other cryptocurrency platforms, including Binance and Coinbase, asserting its authority to regulate these platforms and the digital assets they offer.
The denial of the SEC’s request to appeal the ruling in the Ripple case is seen as a notable defeat for the regulator. It reinforces the argument that not all cryptocurrencies should be classified as securities and highlights the challenges faced by the SEC in regulating this rapidly growing market.
Neither the SEC nor Ripple, including its Chief Executive Brad Garlinghouse and co-founder Chris Larsen, have responded to requests for comment on the judge’s decision.
The case is SEC v Ripple Labs Inc et al, U.S. District Court, Southern District of New York, No. 20-10832.
