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  • L Misthos and M Bacina

Ripple Effect: SEC Appeal of Torres Decision Does not Dispute XRP is not a security under US law

In a significant development to the ongoing Ripple case, Judge Analisa Torres has granted the United States Securities and Exchange Commission (SEC) permission to file an interlocutory appeal in its case against Ripple Labs. This move could set a precedent for other pending and future cases involving digital assets.

The SEC's request for an appeal was met with opposition from Ripple Labs. Ripple's legal team put forth three main arguments against the SEC's appeal. They argued that an appeal requires a "pure question of law" and claimed that the SEC's request raised no new legal issues warranting review. Ripple also contended that an immediate appeal would not advance the termination of litigation proceedings.

An important aspect of note in the appeal is that the SEC does not seek to appeal what is rightly one of the more important aspects of the underlying judgment, namely the finding of Judge Torres that XRP:

is not in and of itself a "contract, transaction[,] or scheme"

The SEC's appeal borders on snarky, stating that:

the SEC does not seek appellate review of any holding relating to the fact that the underlying assets here are nothing but computer code with no inherent value

Brad Garlinghouse, one of Ripple's chief executives, expressed optimism about the case in an interview with Bloomberg, saying the SEC would face a lengthy appeals process and emphasised that "the law of the land right now is that XRP is not a security."

The appeal of Judge Torres' decision could have far-reaching implications as a US Court of Appeals for the Second Circuit would create binding precedent and potentially affect multiple pending court cases related to the sale of digital assets. The case against Ripple has been underway since December 2020 and has garnered significant attention from both the legal and crypto communities as those wishing to sell tokens in the US have had no practical way to seek any regulated path to make such sales, a fact highlighted by Coinbase repeatedly, and the main regulator, the SEC, has declined to make rules, asserting the law is clear.

Ripple wrote to Judge Torres on 18 August proposing that the appeal be disallowed until after final judgment, and the main cause appears to be likely to be set down for a full hearing after mid-April next year.


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