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Ripple Labs Case: SEC Plans to Challenge Court Ruling

Ripple Labs Faces Partial Legal Setback

Ripple Labs was found to have breached securities laws by directly selling XRP to institutional investors, according to a recent federal court ruling. However, the judge clarified that Ripple’s sales of XRP to retail investors through exchanges were not in violation of the same laws. Following this decision, the U.S. Securities and Exchange Commission (SEC) announced plans to file an “interlocutory appeal,” as revealed in a court submission on Wednesday.

Ripple Labs Court Document from SEC

We covered an article on this intention a few weeks ago.

The SEC is seeking permission to appeal specific aspects of the recent judgment while allowing other elements of its case to proceed to a full trial. By securing authorization for an interlocutory appeal, the SEC aims to avoid the need for two separate trials on the same matter, as the appeal’s resolution could address crucial legal matters.

The SEC argues that there are significant differences of opinion on certain legal issues that an appeal could help clarify. Moreover, the outcome of this appeal holds substantial implications for the SEC’s ability to enforce securities laws and is relevant to numerous ongoing legal actions.

For several years, the SEC has asserted its authority to regulate digital assets like cryptocurrencies, viewing them similarly to traditional securities such as stocks and bonds.

“Specifically, the SEC seeks to certify the Court’s holding that Defendants’ ‘Programmatic’ offers and sales to XRP buyers over crypto asset trading platforms and Ripple’s ‘Other Distributions’ in exchange for labor and services did not involve the offer or sale of securities under [the Howey test],” the SEC filing said.

Last month, a federal judge ruled that Ripple’s direct sales of XRP to institutional investors violated securities laws, while its programmatic sales to retail investors through exchanges were deemed compliant. Judge Analisa Torres, presiding over the U.S. Southern District Court, tentatively scheduled a trial for other unresolved matters, not addressed in the motions for judgment, for the second quarter of 2024.

Ripple labs coin and SEC logo

We did an article on that here.

The SEC, in its submission, highlighted that Ripple is required to provide a response by August 16, 2023 (within a week from the filing of the letter).

Additionally, the SEC proposed submitting an opening brief outlining the grounds for appeal on August 18. Subsequently, Ripple would be granted a two-week window to present their response, and if the judge approves the submission, the SEC would have an additional week to reply to Ripple’s arguments.

Under the leadership of Gary Gensler, the SEC, having initiated over 100 enforcement actions concerning cryptocurrency, often resulting in settlements, has gained prominence.

Gensler’s efforts have extended to curbing speculative imbalances within the cryptocurrency domain. He has expressed the view that such practices erode confidence among investors in the integrity of the U.S. capital markets.

The legal proceedings involving Ripple and Terraform do not have a direct impact on the ongoing SEC litigation against Coinbase, the largest cryptocurrency platform in the United States, centered on allegations of unlawful operations due to its failure to register as an exchange.

Furthermore, the SEC has also pursued legal action against Binance, the world’s most extensive cryptocurrency platform.

Gary will hopefully end his crusade sometime soon, or have it done for him.

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