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Ripple Voices Opposition to SEC’s Appeal: No “Extraordinary Circumstance” Exists

Published August 17, 2023 1:44 PM
Omar Elorfaly
Published August 17, 2023 1:44 PM

Key Takeaways

  • Ripple filed a request to dismiss the SEC’s appeal in the ‘unregistered securities’ case
  • Ripple bases its argument on three key factors
  • The SEC may risk losing other lawsuits due to the appeal

Since July 13th, Ripple’s lawsuit has been echoing across the crypto industry. Stakeholders from all over the market have constantly discussed the fate of the US Securities and Exchange Commission’s firm stance on altcoins. 

To no one’s surprise, the SEC did not give up following Judge Analisa Torres’ ruling. The regulating body filed an appeal to the case, insisting that Ripple did indeed trade in unregistered securities.

Ripple is now attempting to dismiss  the SEC’s appeal, claiming that there’s no ground of legitimacy for the appeal, citing three key points of contention.

Lack Of Extraordinary Circumstances

Stuart Alderoty, Chief Legal Officer at Ripple, tweeted  the company’s clear rejection of the SEC’s attempt to keep the lawsuit alive. 

The company executive cited, “There is no extraordinary circumstance here that would justify departing from the rule requiring all issues as to all parties to be resolved before an appeal.”

Ripple’s CEO, Brad Garlinghouse, added  “The request for appeal (even if granted) doesn’t change the fact that XRP is not a security. That’s not up for debate/trial. But the SEC continues to claim that Chris and I acted recklessly in believing that XRP is not a security. That’s utter nonsense.”

To officiate the company’s rejection of the SEC’s attempt at an interlocutory, company lawyers filed an official request  to the United States District Court, Southern District of New York, to dismiss the SEC’s motion.

The document immediately outlines the discrepancies in the SEC’s approach to the crypto industry, adding that the regulating body failed to prove the claims it had made through litigation.

“For years, the SEC has pursued a strategy of regulating the U.S. crypto industry through case-by-case enforcement. In keeping with that strategy, the SEC argued that the only question before the Court was applying the Howey test to the specific circumstances of this case. 

Having failed to meet its burden to present facts that would support stretching Howey to cover all of the Defendants’ distributions of the digital asset XRP, the SEC now does an about-face and rushes to appeal what it claims (at 1) is a purely “legal question” affecting all other digital-asset cases. 

The Court should reject this gambit because the SEC raised no such question.2 The SEC can appeal the Court’s decision in the normal course after a final judgment with a full record.”

The document then moves on to cite three key points upon which Ripple argues against the appeal.

1. “The Court’s Order Does Not Involve a Controlling Question of Law.”

Ripple’s lawyers argue that the SEC’s appeal does not address any specific law. Since the regulating body based its argument on the Howey test (which is seen as “highly fact-

specific inquiry”, Judge Torres’ ruling does not apply a new law, but rather uses the test’s findings to make a fact-based decision. 

Moreover, lawyers argue that the SEC’s appeal only applies to a part of the case. And, since the SEC is appealing at the Second Circuit court, the SEC’s questions presented are not controlling issues of law, hence “an interlocutory appeal [is] inappropriate.”

2. “The SEC Cannot Show a Substantial Ground for Difference of Opinion”

“To meet the second condition for certification, the SEC “must do more than just ‘claim that the court’s ruling was wrong’.

[It] 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.” reads the filing’s text. 

Basically, Ripple is arguing that Judge Torres’ ruling is based on facts and does contradict any laws created by adjacent courts.

“The SEC argues that SEC v. Terraform Labs Pte. Ltd., “expressly ‘reject[ed]’ ” the distinction between programmatic and institutional purchasers that this Court drew in its Order. But the court in Terraform agreed with this Court that sales of digital assets alone are not inherently securities offerings. 

Compare Order at with Terraform. There is no intra-district split over whether digital assets standing alone can be investment contracts, whether the Howey test applies, or how the Howey test should be applied to Defendants’ offers and sales of XRP based on the record presented at summary judgment. While this Court’s holding rested on record evidence at summary judgment that Ripple made no “promises or offers” to purchasers in Programmatic Sales.”

“The factual and procedural postures of the two cases are thus different, as the SEC itself has argued.”

3. An Immediate Appeal Will Not Advance the Termination of This Litigation

Ripple lawyers argue that the SEC’s appeal will essentially lead nowhere as it will not put an end to the lawsuit in any direction. 

The claim is that such an appeal “is reserved for those cases where an intermediate appeal may avoid protracted litigation.”

“Even putting aside those unresolved liability questions, the SEC admits that the remedial phase of this litigation will “raise an array of factual and legal issues,” and involve additional motion practice and discovery. That will occur even if the SEC wins an immediate appeal. Accordingly, “appellate reversal would not terminate the litigation because the question of damages would remain.”

What Happens If The SEC Loses After The Appeal?

Alderoty went on a podcast  on July 26th where he stated that “Our case and the decision rendered by our judge [Torres] will comfort other judges that the SEC is just misguided.”

The executive is claiming that the SEC may risk adjacent lawsuits filed against crypto institutions such as Coinbase if it continues to pester Rippe with the same lawsuit.

The SEC has already gathered a significant sum of opposing parties , not only within the Ripple case, but also with the Coinbase case, and the commission’s overall approach to the crypto market. 

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