The US Securities and Exchange Commission (SEC) said that a portion of Ripple’s ruling was “wrongly decided,” according to court documents filed on July 21. The part of the ruling being referenced, the part that went against the SEC, stated that the sale of XRP on exchanges did not constitute a sale of securities.

The SEC’s comments were part of the filing of its lawsuit against Terraform Labs and its founder, Do Kwon. The SEC was responding to a motion to dismiss filed by the defendants, which concerned the Ripple case ruling from earlier this month.

The SEC’s comments came less than a week after SEC Chairman Gary Gensler said he was “disappointed” with Ripple’s ruling on retail sales.

Ripple’s Decision Conflicts With Howey Test, SEC Says

Ripple’s ruling, widely regarded as a victory for the US crypto industry, was primarily a victory for the SEC, not Ripple. The SEC noted that “much of Ripple’s ruling supports the SEC’s assertions.”

In addition, the court ruling on the sale of XRP to retail investors “is in conflict and adds
Unsubstantiated requirements for Howey and his offspring,” the SEC wrote, adding:

“…Ripple’s Analysis of Programmatic Selling [retail sales] cannot be squared with Howey and decades of federal securities law case law.”

Ripple’s ruling found that the sale of XRP to institutional investors counted as a sale of securities. According to the SEC, the court should have reached a similar conclusion regarding XRP retail sales.

However, the SEC argued that Ripple’s ruling created an “artificial distinction” between “sophisticated” institutional buyers and retail investors. In addition, the ruling “improperly transforms Howey’s investor’s reasonable investigation into a subjective one, and turns the reasoning behind Howey and other cases on its head,” he added.

In other words, the Ripple ruling created two different “reasonable investor” standards for institutional and retail investors. Creating such a “subjective dichotomy is contrary to Howey,” the SEC noted.

The market regulator concluded:

“Ultimately, the underlying logic of the Ripple ruling is divorced from the basic principles behind Howey and federal securities laws more generally. “

The SEC explained that by differentiating between institutional and retail investors, federal securities laws provide more protection for retail investors, not less, as is the case with the Ripple ruling. Therefore, the SEC noted that the ruling is “impossible to reconcile” with the fundamental principles of securities laws.

Citing all these explanations, the SEC asked the court to ignore Ripple’s ruling related to retail sales in the lawsuit against Terra and Kwon.

SEC may appeal part of Ripple ruling

In the filing, the SEC said its staff is considering all options for “further review” and “intends” to recommend that the SEC file an appeal.

Last week, Ripple CEO Brad Garlinghouse said it could take “years” for the SEC to file an appeal. Garlinghouse added that he was “very optimistic” that even if the SEC filed an appeal, Ripple would win and consolidate the recent ruling.

Posted in: Ripple, XRP, Legal

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