The U.S. Securities and Exchange Commission (SEC) has filed a motion requesting permission to appeal a federal court ruling last month claiming that secondary sales of Ripple’s XRP token are not securities.
The agency argued that there are still “substantial grounds for difference of opinion” regarding how securities laws apply to crypto, making frequent reference to a similar case involving Terraform Labs where the judge ruled differently.
Ripple Case Not Over?
The motion, filed on Friday, contested two of Judge Analisa Torres‘s rulings last month: one that “Programmatic Sales” of XRP (ex. secondary market sales) did not satisfy Howey, and another that “Other Distributions” (ex. Payments for services) also failed to do so.
“There are significant grounds for difference of opinion on the correctness of both rulings,” wrote the agency. “Since this Court’s decision, another court in this district explicitly disagreed with the Order’s ruling on the Programmatic Sales.”
Shortly after the Ripple ruling, Terraform Labs attempted to capitalize with a motion to dismiss a similar SEC case against the firm, alleging securities fraud for failing to register its now failed TerraUSD (UST) stablecoin.
District Judge Jed Rakoff rejected the group’s reasoning, however, refusing to distinguish “institutional” and “secondary” market sales in regards to being a security. “Howey makes no such distinction,” he wrote at the time.
The agency referenced numerous prior cases – including its charges against Telegram and LBRY – as proof that courts have already identified securities act violations when transactions occurred through intermediaries, including through exchanges.
“In the opinion of the Terraform court, for example, the inquiry turns on what the issuer objectively invites investors to understand, and not on the method of carrying out the transaction,” argued the SEC.
The agency added that the source of purchase for XRP should not affect whether Ripple had established a reasonable expectation of profit for investors – one of the core pillars defining an investment contract.
Lawyers Give Their Take
Bitcoin-supportive litigator Joe Carlesare expressed support for the SEC’s appeal on Friday, agreeing that a crypto issuer’s promotions equally impact both direct purchasers and secondary market buyers.
“This is the economic reality of the crypto market — where most participants are relying on the team/devs to promote/develop the token,” he said.
On the other hand, XRP supportive lawyer Sandy Seth called the SEC’s position “utterly ridiculous,” given that the agency didn’t appeal Torres’s ruling that XRP itself is a security.
“So if XRP is not a security how can sales of XRP be a sales of a security?” he asked.