Ripple vs SEC Judge Rules XRP a Security Only in Institutional Sales, SEC Likely to Appeal Before October 7

Federal Court Judge Analisa Torres has ruled that XRP, the token affiliated with Ripple, is a security only when sold to institutional investors, in a ruling that marked a major milestone for Ripple Labs and a partial victory for the broader crypto community.

However, experts warn that the SEC is likely to challenge the decision, igniting a new wave of uncertainty for Ripple vs SEC. With a deadline of October 7, the SEC may seek an appellate court’s judgment on XRP’s status in programmatic sales. Fox Business reporter Eleanor Terrett, citing a former SEC lawyer, reported that the regulator is highly likely to appeal.

“Everyone over there [at the SEC] truly believes that the decision is wrong, that it’s not good law, and should be appealed,” a source close to the SEC stated. This sentiment echoes concerns from various legal experts, who predict that the Ripple vs SEC saga is far from over.

Ripple vs SEC: Will SEC Appeal Ripple XRP Ruling?

Many in the legal community, including Massachusetts Senate candidate and XRP advocate John Deaton, believe that an appeal may not yield a different outcome. Deaton, who was deeply involved in the case by submitting an Amicus Brief on behalf of XRP holders, argues that the SEC failed to meet the crucial “common enterprise” standard in the Howey Test—a central pillar in determining whether an asset is a security.

Deaton explains, “Judge Torres’s ruling was very fact-specific, relying on the affidavits submitted by XRP holders. The SEC did not establish the presence of a common enterprise, which is key to the Howey Test. Appealing this would be challenging.”

The Howey Test, established by the Supreme Court, has four key components:

Investment of money

Investment in a common enterprise

Expectation of profit

Profits to be derived from the efforts of others

In her ruling, Judge Torres concluded that XRP’s sale on exchanges did not meet the third criterion. Specifically, the Ripple vs SEC case centered around whether retail sales of XRP on exchanges constituted securities transactions.

The court found that these sales, which took place on an order book and not directly from Ripple, did not create an expectation of profits based on the company’s efforts.

Another key figure in the case, attorney Fred Rispoli, highlighted that if the SEC does appeal, it will likely focus on Ripple’s programmatic sales. According to Rispoli, programmatic sales differ from secondary sales made by retail investors in that they directly involve Ripple. He also pointed out that Judge Torres never ruled on secondary market sales in her decision.

“The difference is Ripple selling on an exchange as opposed to others selling on an exchange to each other. Page 23, n.16 of the 7/13/23 order addresses this,” Rispoli explained. This distinction could become crucial in the Ripple vs SEC appeal, as the SEC may argue that Ripple’s programmatic sales should indeed be classified as securities transactions.

Ripple vs SEC: What Are the Odds of a Successful Appeal?

Legal experts are divided on whether an appeal would succeed. While the SEC may feel confident in challenging the ruling, others believe the case’s factual nature makes an appeal unlikely to overturn Judge Torres’s decision. XRP advocate Jeremy Hogan believes the SEC is “losing the plot.”

Hogan remarked, “The SEC needs to reconsider its focus. The Ripple vs SEC ruling is a positive outcome for Ripple and for the broader crypto industry. The SEC should consider what an appeal would mean for its mandate of investor protection and capital formation.”

Despite Hogan’s skepticism, investigative journalist Jungle Inc Crypto has a different take. On X (formerly Twitter), Jungle Inc urges the SEC to appeal if they believe that the ruling regarding programmatic sales was incorrect. “If the SEC genuinely believes that the secondary market requires more protection, they should pursue an appeal—but first, they need to reflect on their real motives,” Jungle Inc posted.

As the clock ticks towards the October 7 deadline, the XRP community anxiously awaits the SEC’s decision. Market analysts predict that a successful SEC appeal could dampen the optimism surrounding XRP, and potentially other cryptocurrencies, as regulatory clarity remains uncertain.

Attorney Fred Rispoli even speculates that XRP could surpass its 2021 all-time high of $1.96 if the ruling stands. However, an SEC appeal could delay this bullish trajectory.

At the time of writing, XRP is trading at $0.59, reflecting a modest 0.66% increase since the market opened on Friday, according to BeInCrypto data.

As the deadline for an appeal looms, Ripple Labs and the wider crypto community must prepare for what could be the next major showdown in the Ripple vs SEC legal battle. If the SEC proceeds with its challenge, it could set a significant precedent for other cryptocurrencies and token issuers facing regulatory scrutiny.

For now, XRP holders remain cautiously optimistic. Attorney John Deaton adds, “An appellate court could affirm Judge Torres’s decision, but it won’t prevent the SEC from arguing that secondary sales constitute investment contracts in future cases.”

The outcome of Ripple vs SEC could reverberate across the entire crypto landscape, shaping how digital assets are regulated for years to come. Get more from The Bit Gazette.