The legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC) has been the focus of the crypto community, and recent events have only heightened the attention. The US Securities and Exchange Commission’s request for an interlocutory appeal prompted intense scrutiny, and legal experts assessed the potential outcomes and their wider implications.
Lawyer John E. Deaton explained that it was only a preliminary letter in which the Commission “asks permission from the judge to file a formal motion that it authorize the Securities and Exchange Commission to then ask the Court of Appeals for the 2nd Circuit to accept an early appeal. ”
Lawyer John Deaton expects Judge Analisa Torres to grant the motion because it would “enable her to explain her case even more fully, as well as make him ‘safe from appeal’ and ‘enable her to address any Rakoff case’.”
Recall that District Judge Jed Rakoff of SDNY recently allowed the SEC to proceed with the case against Terraform Labs and founder Do Kwon, rejecting Judge Torres’ reasoning and the distinction between public and institutional token sales in the Ripple case.
Deaton also claims that “critics of Torres’ decision seem to be ignoring her claim that “some programmatic buyers may have purchased XRP in anticipation of profiting from Ripple’s efforts” but that “there simply wasn’t enough credible evidence provided by the SEC to do so.”
Legal Expert Jeremy Hogan referred on the SEC decision to file an interlocutory appeal as doubtful, noting that the regulator “does not appeal to whether XRP itself is a security, but only focuses on programmatic and individual sales of Ripple.”
Interestingly, lawyer Bill Morgan emphasized a “subtle but significant change” in SEC language, evident in an agreement with crypto exchange Bittrex and its co-founder and CEO William Shikhara, in which it no longer uses “digital asset securities sales” and “crypto assets are assets offered and sold as securities”, in a message dated August 11.
Popular legal expert James Murphy, known on Twitter as MetaLawMan singled out three options that Ripple can take in response to the SEC appeal request, and all of them have good reasons.
Ripple’s first option is to oppose the motion to confirm the appeal. At the heart of this position is Ripple’s unshakable confidence in the correctness of Judge Torres’ decision. The second option is for Ripple to agree with the SEC that an interlocutory appeal may be appropriate. Such a move would be based on the recognition of the inevitability of appeals in this case. The key question then becomes one of timing: Will the appeal process begin immediately or will it be delayed until the trial of Brad Garlinghouse and Chris Larsen?
And third, Ripple may choose to cross-appeal on the institutional sale claim by agreeing to the interlocutory appeal. The strategic logic here, as outlined by MetaLawMan, is that if the 2nd Circuit overturns the SEC’s victory in this lawsuit, it would eliminate the need for an Aiding and Abetting Institutional Selling litigation.
The Court of Appeals for the 2nd Circuit will consider a key issue
Brian Jacuto, Partner at Election Law Group, draws attention to the Terraform Labs case, which could have materially influenced Judge Torres’ decision. Jacuto notes that the SEC reference to the Terraform case deserves special attention. In this case, the judge “rejected” part of Judge Torres’ analysis, specifically her distinction between institutional sales and “programmed sales”. This rejection is not just a minor disagreement; it challenges the very basis of Judge Torres’ decision in the Ripple case.
Given this dispute between Ripple’s decision and Terraform’s decision, Jacuto believes the current case is a prime candidate for an interlocutory appeal. If Judge Torres grants the SEC’s request, it will set the stage for the 2nd Circuit Court of Appeals to consider this key issue.
In addition, Jacuto highlights the potential streamlining of the appeals process if the interlocutory appeal is successful. This would mean a faster and more definitive decision on whether Howey’s new “blind demand/demand” Torres theory stands up to scrutiny.