Ripple has filed its opposition to the motion by the US Securities and Exchange Commission (SEC) to certify an interlocutory appeal.
The case started in December 2020, when the SEC alleged that virtually all of Ripple’s transactions in XRP over eight years were investment contracts (securities).
The regulator’s case against Ripple has been the highlight of its strategy to regulate the US crypto industry through case-by-case enforcement as opposed to general regulation.
After Judge Torres allowed the SEC’s request for an interlocutory appeal, the commission pushed to appeal what it claims is a purely “legal question” applicable to every digital asset case. It said:
The SEC seeks certification for immediate appeal and a stay pending the Second Circuit’s resolution of that appeal.
On September 1, Ripple filed its opposition to the SEC’s motion, saying it does not show any allegiance to the law.
Ripple Labs’ memorandum of law in response to SEC’s motion to certify interlocutory appeal
According to Ripple Labs, the SEC fails to establish any of the three conditions required for certification of an interlocutory appeal.
These conditions include:
- The order must raise a pure or controlling question of law.
That the reviewing court can decide quickly and without having to study the record.
- There must be substantial ground for a difference of opinion on the proposed questions of law.
That the SEC must show that courts are in clear conflict with one another on the subject and that the ‘issue is particularly difficult and of first impression.
- The immediate appeal from the order should be able to materially advance the ultimate termination of the litigation.
Notably, an interlocutory appeal is generally “unwarranted” where reversal would not terminate the litigation.
The defendant believes these criteria have not been met, and has therefore asked the court to follow the Second Circuit’s instruction and deny the SEC’s request to certify an interlocutory appeal.
It also wants the court to turn down the SEC’s request for a stay pending appeal for the reasons identified in the ‘Individual Defendants’ separately filed opposition.
SEC vs Ripple lawsuit FAQs
It depends on the transaction, according to a court ruling released on July 14:
For institutional investors or over-the-counter sales, XRP is a security.
For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.
The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token.
While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.
The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at.
Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say.
Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.
The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation.
While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.
The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.
Source: FX STREET