Experts Say Neither Ripple nor the SEC Will File for an Appeal, But There’s a Twist

The long-awaited ruling in the years-long case between Gary Gensler’s Securities and Exchange Commission (SEC) and Ripple Labs ended with an interesting ruling.

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Analisa Torres, Judge of the United States District Court for the Southern District of New York, presiding over the case, handed down a US$125 million (AU$189.6 million) fine and injunction against Ripple preventing it “from further violations of the securities laws”.

“Generic Order with No Effect on ODL”

That last bit sounds a little intimidating, but lawyer Jeremy Hogan says it’s really not all that bad for Ripple, as he puts it, they just can’t break the law.

It’s also not affecting the ODL sales of Ripple, he said.

Not bad for ODL. The judge didn’t prohibit ODL sales – is only giving a generic order against breaking the law.

Jeremy Hogan

Also, the US$125 million wasn’t nearly as much as the SEC had asked for, falling roughly 94% short of the US$2 billion (AU$3 billion) the regulator wanted to see.

The price of XRP reacted with an initial 25%+ surge and after some corrections has managed to keep most of the gains, going from US$0.49 (AU$0.74) just before the ruling, to US$0.62 (AU$0.94) as of writing.

Appeal Not Likely, But…

So, most observers are fairly confident that neither the SEC nor Ripple will appeal the ruling. In a statement to Fox Business reporter Eleanor Terrett, a SEC spokesperson gave the impression that the regulator was happy with the result. Terrett said:

The response from both sides shows that each feels they got the better deal — Ripple is celebrating because the fine was a billion and three quarters less than what the SEC originally suggested. The SEC is celebrating because Ripple now has to pay twelve times the amount it originally suggested and the judge agreed that the firm had violated securities laws.

Eleanor Terrett

She added that while an appeal to this matter seems unlikely, “it’s more likely that the SEC would appeal the July 2023 ruling now that final judgment has been reached”.

The 2023 ruling was a partial victory for Ripple as the judge said XRP sold on exchanges (programmatic sales) are not unregistered securities offerings, whereas institutional sales are. The SEC at the time sought to fight against this but was told that they had to wait until after the final verdict in the case before they could challenge this.

Layer Says Appeal Could Be Crucial For SEC, But This Case May Not Be the Right One

However, well-known lawyer MetaLawMan believes the SEC is likely to appeal the decision due to its significant implications for the SEC’s enforcement capabilities and broader crypto regulation. 

He highlights that the decision on disgorgement – that the SEC must now prove actual financial losses to enforce penalties – alters long-standing SEC practice and impacts many ongoing and future cases. He noted:

This decision on disgorgement is very, very impactful for the SEC’s entire enforcement program. If they can’t get disgorgement without proving losses, it impacts significantly pending cases, as well as other cases that they would like to bring.

MetaLawMan

Additionally, MetaLawMan points out the broader implications for cryptocurrency trading, especially regarding whether tokens traded on secondary markets are considered securities transactions.

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The court’s decision that secondary XRP sales on exchanges are not securities transactions – as mentioned – could set a precedent affecting other platforms and cryptocurrencies. He points to the SEC’s prior ambition to overturn that ruling:  

And so that impacts the other cases, Coinbase, Binance, Kraken and others – and the Binance judge followed Judge Torres’s reasoning. The SEC doesn’t want this to snowball. So, this issue is the most important issue really to all of crypto. The only question is whether the SEC concludes that this is the best case to take that question up and remember, they already tried once.

MetaLawMan

And, of course, it’s still possible that this case goes up to a higher court…