SEC Appeals Verdict in Ripple Case: An Ongoing Legal Battle
The Securities and Exchange Commission (SEC) has officially filed an appeal against Ripple Labs with the U.S. Court of Appeals for the Second Circuit. This move is a challenge to the ruling made on August 7, 2024, which had significant implications for the ongoing legal tussle between the two entities. Ripple’s CEO, Brad Garlinghouse, has openly criticized the SEC, accusing the agency of damaging its own credibility and unnecessarily prolonging the legal confrontation instead of fulfilling its mandate to protect investors.
The Origins of the Conflict
The legal battle between Ripple and the SEC commenced when the regulatory body accused Ripple of selling unregistered securities through its digital asset, XRP. Although Ripple secured a partial victory earlier, the SEC’s decision to appeal has drawn widespread criticism from the cryptocurrency community. This decision has also led to a significant drop in the price of XRP, plummeting over 10%.
Can Ripple Counter-sue the SEC?
In response to rising frustration, some have suggested that Ripple should consider suing the SEC, branding it a “Rogue Agency.” However, Marc Fagel, a former SEC attorney, humorously corrected the term to “a Rouge Agency, or at least a little pinkish.” Despite the jest, he clarified that Ripple, having raised over $700 million through an unregistered securities offering, is not in a strong position to initiate legal action against the SEC.
Ripple’s Business Operations Post-Appeal
A query arose about whether Ripple could continue its business operations through secondary market XRP sales without facing additional legal challenges, especially in light of the SEC’s appeal. The focus of the SEC’s appeal is likely on the court’s decision that ruled sales through intermediaries were not securities. As long as this decision remains intact, Ripple can continue its secondary market sales. However, it is important to note that the court’s ruling applied solely to historical practices and not to current operations.
Potential for a Cross-Appeal by Ripple
There is speculation regarding Ripple’s potential to appeal based on the argument that On-Demand Liquidity (ODL) transactions do not meet the criteria set by the Howey Test, particularly regarding the expectation of profit. Marc Fagel commented that Ripple could potentially file a cross-appeal on this matter.
He noted that while the court might find most sales to have violated Section 5, there is a possibility that ODL transactions could be viewed differently as they appear to align more closely with the legal framework. However, he emphasized that this is merely his opinion, an opinion that is shared by many securities lawyers who have yet to publicly voice their perspectives.
Conclusion
The SEC’s appeal against Ripple adds another layer of complexity to an already intricate legal saga. The outcome of this appeal could set a precedent for future regulatory actions in the cryptocurrency space. As both Ripple and the SEC prepare for the next phase of their legal encounter, the crypto community watches closely, understanding that the implications could reach far beyond the confines of this specific case.
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