Regulation

Former US SEC Lawyer Predicts XRP Case Appeal

Published

3 months ago

September 27, 2024

Eleanor Terrett, a journalist at Fox Business, has noted that a former lawyer from the U.S. Securities and Exchange Commission (SEC) believes the SEC will “probably” appeal Judge Analisa Torres’s ruling from July 2023 in the Ripple vs SEC Lawsuit.

As the lawyer pointed out, several at the SEC believe that the outcome of Ripple’s programmatic XRP sales is incorrect and must be appealed. The SEC has up to October 7 to file an appeal and this is still a key area to watch as the case progresses.

Ripple Vs SEC Lawsuit: Former US SEC Lawyer Predicts XRP Case

In the report, the former SEC lawyer revealed that there are many in the agency who still hold the view that Judge Torres got it wrong with the Ripple programmatic XRP sales. This notion may push the agency to seek an appeal especially because they argue that the decision is “not good law.” The lawyer’s comments echo the sentiments of other industry insiders who have pointed out that the SEC may well appeal this decision.

🚨NEW: A former @SECGov lawyer who recently left the agency tells me the SEC will ‘probably’ appeal Judge Torres’s July 2023 ruling concerning the $XRP programmatic sales in the @Ripple case partly because: “everyone over there [at the SEC] truly believes that the decision is…
— Eleanor Terrett (@EleanorTerrett) September 26, 2024

Despite the potential for an appeal, the U.S. Securities and Exchange Commission does not dispute the judge’s ruling that XRP itself is not a security. The Ripple vs SEC Lawsuit has garnered significant attention as the SEC’s appeal would likely focus on the classification of programmatic sales and whether they meet the legal standards under the Howey Test, the key criteria for determining investment contracts.

Similarly, another former SEC lawyer, Marc Fagel, noted that an appeal is expected since the filing deadline is near in the Ripple vs SEC Lawsuit.

Legal Experts Weigh in on the Case

Several notable figures have commented on the possibility of an appeal. Attorney John Deaton, who has been actively involved in the Ripple vs SEC Lawsuit and filed an Amicus Brief on behalf of XRP holders, shared his perspective on the SEC’s chances of success. Deaton argued that Judge Torres’s ruling on programmatic sales was very fact-specific and based on the unique circumstances of the Ripple case.

He noted that while the agency could argue that secondary sales of XRP might meet the Howey Test criteria in other cases, the facts in the Ripple vs SEC Lawsuit did not satisfy those standards.

As someone who knows the @Ripple case very well, considering I was an active litigant for over 2 1/2 years, and considering Judge Torres cited my Amicus Brief, and the 3,800 XRP Holder Affidavits I submitted, as well as my efforts, as Amicus Counsel, in the @LBRYcom case (see… https://t.co/Ot7AgoFQh7
— John E Deaton (@JohnEDeaton1) September 26, 2024

Deaton also said that even if the U.S. Securities and Exchange Commission could overcome the third prong of the Howey Test, it would still need to show that there was a ‘common enterprise’ existed, which was a weak point in the case. Consequently, he estimates that an appeal would be expensive and time-consuming with a low probability of reversing the initial decision. Meanwhile, despite Judge Torres previously ordering Ripple to pay a $125 million penalty, the court issued a stay on the payment pending the outcome of the appeal.

SEC’s Strategy and Investor Protection Concerns

Other lawyers, for instance, Jeremy Hogan, expressed doubts in the US SEC’s intentions if the agency decides to appeal the ruling. Hogan noted that the SEC should concentrate on investor protection and capital formation, with questions being raised if an appeal is consistent with the agency’s mission. Others have stated that the persistence in the Ripple vs SEC Lawsuit is a potential diversion for its other regulatory mandates.

I stand by my 60% chance of appeal on the programmatic sales part of the decision. https://t.co/qjKcNhu46Y
— bill morgan (@Belisarius2020) September 26, 2024

Furthermore, Bill Morgan has estimated that there is a 60% likelihood that the U.S. Securities and Exchange Commission will appeal the programmatic sales part of the ruling.

Despite all these, Ripple President Monica Long took time to discuss the future of the company and how the court’s decision is beneficial to XRP. Speaking about the verdict in the case, Long said that the victory leads to more certainty and the company is now looking for new business prospects, including the introduction of the RLUSD stablecoin and active work on the XRP Ledger.