Renowned cryptocurrency lawyer John Deaton, who represents more than 75,000 XRP holders, saying on July 23 that an SEC appeal will not necessarily change the outcome of Ripple’s ruling.
In the ever-changing landscape of cryptocurrency regulations, Ripple’s recent ruling has brought hope and uncertainty to the cryptocurrency industry. Earlier this week, the US Securities and Exchange Commission (SEC) expressed its intentions to appeal part of the decision, which the agency said was “erroneously decided.”
The SEC takes umbrage with the part of Ripple’s ruling about the retail sale of XRP on crypto exchanges. The judge ruled that the retail sale of XRP did not constitute security sales, but the SEC wants to potentially appeal the ruling.
However, Deaton noted in a Tweet that even if the SEC were to file an appeal, it would take around two years before the court issues a decision. Meanwhile, the Ripple ruling issued by Judge Analisa Torres will continue to be the governing law, at least within the 2nd Circuit.
Appeal does not guarantee victory for SEC, says Deaton
Deaton claimed that Ripple would potentially win in court for a second time if the SEC moved forward with its appeal. According to Deaton’s analysis, even if the Second Circuit potentially disagreed with Judge Torres’ application of the third factor of the Howey test, it does not guarantee a victory for the SEC.
The four factors in the Howey Test include (1) an investment of money, (2) in a common enterprise, (3) the expectation of profit (4) derived from the efforts of others. Any asset that checks all four boxes is classified as a security and is governed by federal securities laws.
Judge Torres ruled that the retail sale of XRP did not meet the third factor of the Howey test because retail investors did not have a reasonable expectation of profit tied to Ripple’s success.
If the Second Circuit finds that Judge Torres’ application of the third part of the Howey test is “incorrect,” Judge Torres would likely evaluate the remaining two factors of the Howey test, Deaton said. In that case, Judge Torres could “rule IN EXACTLY THE SAME WAY” as the first time, after finding that the SEC failed to meet the common enterprise factor, he added.
It is important to clarify that the Torres Decision is not binding beyond the Southern District of New York (SDNY). While a fellow district judge within the SDNY might disagree with Judge Torres, Deaton argues that such a dissent would be less likely within the second circuit, especially considering his quoting from Judge Castel’s ruling in the Telegram case.
Deaton further pointed to the Coinbase transcript as evidence that the events appear to align with Judge Torres’ perspective. He suggests that there is already a trend of consensus within the Second Circuit, indicating a possible alignment of views with the Torres Decision.
SEC created a ‘mess’
Ripple CEO Brad Garlinghouse saying the SEC has created a “mess” around the protection of retail investors by claiming jurisdiction over cryptocurrencies.
“The SEC created this mess by claiming to be the policeman in the crypto world when it had no legal jurisdiction. Where has that gotten us? Consumers got to keep the bag in bankruptcy court while the SEC holds press conferences.”
In a Tweet, Ripple’s legal director, Stuart Alderoty noted that the SEC claiming jurisdiction over cryptocurrencies is “just a political power play” that “hurts everyone.”
This post Even if the SEC appealed, Ripple could win again, says pro-XRP lawyer John Deaton
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