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  • L Higgins and S Pettigrove

Ripple Riding a Wave as Court blocks SEC appeal

Ripple Labs, Inc. (Ripple) has secured another victory in its ongoing legal battle against the U.S. Securities and Exchange Commission (SEC). In a ruling last week, District Judge Analisa Torres denied the SEC's petition seeking an interlocutory appeal of the judge's ruling that certain programmatic and other sales of XRP did not constitute securities transactions, sending more ripples of excitement through the blockchain ecosystem.

The SEC had sought to overturn Judge Torres' earlier ruling granting summary judgment in the case and a partial victory to Ripple. In July, Judge Torres found that while Ripple's XRP sales directly to institutional investors were unregistered securities transactions, sales of XRP to retail customers through programmatic sales on exchanges were not securities transactions. The judge also held that XRP grants to employees were not securities transactions as they did not involve an investment of money.

The latest legal twist is another blow to SEC's regulation by enforcement strategy against the US crypto industry, following its earlier defeat in the Ripple case and defeats in the Grayscale ETF litigation and Coinbase rule-making petition.

XRP enthusiasts cheered as the news broke, and the XRP token responded with a 5% price rally on the day, demonstrating the market's enthusiasm for the development.

Senior Legal Counsel of ConsenSys, Bill Hughes, tweeted an update following the release of the judgment:

In her brief ruling, Judge Torres pointed out that the SEC had failed to meet its legal burden justifying an interlocutory appeal and to prove that there were controlling questions of law or substantial grounds for differences of opinion.

The Judge also struck back at Judge Rakoff's recent comments in the Terraform Labs case, carefully warning that her judgment in the Ripple case turns on the specific facts of the case and should not be read as a general statement that programmatic or exchange offerings of digital assets cannot amount to a securities transaction depending on the facts.

The SEC may still pursue an appeal of Judge Torres' summary judgment ruling after trial, meaning this legal drama is likely far from over. Her Honour has also set a trial date for April 2024 to address other unresolved issues in the Ripple case.

The SEC's case which has dragged on for nearly three years at this point looks set to continue for several more years at substantial cost to the parties. Brad Garlinghouse, Ripple's CEO, was recently stated that Ripple alone has spent over US$100 million fighting the SEC case to date. Given the Ripple controversy and lack of uncertainty which continues to hang over the US crypto industry, Congressional action or a consultative rule making process for digital assets looks more and more like a faster, better and more efficient path forward for all concerned.

Written by L Higgins and S Pettigrove


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