The Securities and Exchange Commission (SEC) attempted to interject its appeal of U.S. District Judge Analisa Torres' ruling from July 13 on October 3. If you're interested in learning more about Judge Torres' judgment, read "Ripple v. SEC — Respite for a Beleaguered Industry?" from our earlier piece.
Wyatt Noble and Michael Handelsman, two guest writers for Kelman.Law, wrote the editorial below.
Since X was Twitter, Ripple's conflict with the SEC has made news and generated discussion. The most significant section of Judge Torres' initial ruling, which was eagerly awaited, found that the sale of the XRP digital currency on public exchanges did not violate federal securities laws since purchasers had no reasonable expectation of profit based on Ripple's efforts. However, the SEC is nothing if not tenacious.
An Interlocutory Appeal: What Is It?
An appeal that is made during the course of other proceedings in a case is known as an interlocutory appeal. Judge Torres' prior ruling may be remembered by those who are aware with this case's trial date, which is set for April 23, 2024. However, in this case, the SEC submitted a motion asking for approval to challenge Torres' conclusions on "programmatic" XRP sales and "other distributions" of XRP as compensation for services. The SEC asserted that a "large number" of litigation would benefit from this prospective appeal. Judge Torres, however, rejected the agency once more, concluding that the SEC had failed to fulfill its burden of establishing that there were relevant legal issues that required resolution or that there were still significant grounds for disagreement.
The conflict between Ripple and the SEC has not yet been resolved.
Although proponents of cryptocurrency celebrated Judge Torres' first ruling and her subsequent denial of this interlocutory appeal, this dispute is still far from ended. Even if Ripple receives a positive judgement from a federal court of appeals, Ripple's shareholders would presumably prefer to avoid the possibility of the SEC appealing the entire judgment after the trial on April 23. It might take a few years for Ripple and the industry as large to get the clarity they want, even if Ripple won again, if the SEC requested and was granted permission to appeal the entire case. That is a rather large "if," given that Judge Torres' earlier ruling did not entirely favor Ripple.
Judge Torres did rule that Ripple had broken federal securities laws with regard to its sales of XRP to institutional investors, as we mentioned in our earlier report on this subject. Other judges might also choose not to abide by Judge Torres' decision, whether they disagree with how she interpreted the federal securities legislation or just think it isn't relevant in this case. Consider the judgment rendered by Judge Jed Rakoff in the SEC's action against Terraform Labs. When Terraform Labs' Terra USD cryptocurrency was offered on public exchanges, Judge Rakoff found that the SEC had a "plausible claim" that it was a security. But take note that Judge Rakoff made his choice as he was deliberating Terraform's request to have the SEC's complaint dismissed. Thus, when considering the matter on the merits, Judge Rakoff would not be obligated to accept any conclusions that could reasonably be drawn in the SEC's favor.
While Ripple and the SEC continue to get ready for their April trial, cryptocurrency is still stuck in regulatory limbo. Because Congress has not yet passed a comprehensive measure addressing cryptocurrency, other judges may soon accept portions of Judge Torres' July 13 judgment as authoritative precedent, making it more crucial than ever to seek the advice of legal professionals knowledgeable in digital assets. The most effective method to assure compliance with any relevant laws and regulations, prevent legal hazards, and incur costs that would otherwise hurt your organization is to consult with the attorneys here at Kelman PLLC early on.
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