U.S. Judge Jed Rakoff challenges a previous Ripple ruling, bringing XRP’s regulatory status into contention. Dive into the recent courtroom developments and their potential implications for the crypto industry.
New York, August 1, 2023 – In a ruling that could have profound implications for the crypto industry, U.S. Judge Jed Rakoff of the Southern District of New York has taken a stance at odds with a prior judgment involving Ripple’s XRP token.
Judge Rakoff Denies Terraform’s Motion, Questions Ripple Ruling
On July 31, Judge Rakoff rejected a motion to dismiss fraud allegations against Terraform Labs and its CEO, Do Kwon, put forth by the U.S. Securities and Exchange Commission (SEC). In the course of the ruling, Rakoff voiced disagreement with a prior judgment in the Ripple v. SEC case delivered by Judge Analisa Torres.
On July 18, Terraform Labs, in a bid to protect its interests, invoked Ripple’s partial victory against the SEC as a cornerstone of its defense. Judge Torres had earlier ruled in July that retail sales of Ripple’s XRP did not infringe U.S. securities regulations, pointing out that only institutional sales could be construed as offenses under the Howey Test.
The SEC swiftly retaliated, urging Judge Rakoff to dismiss Ripple-related precedents as they were “wrongly decided.” Judging with the regulatory body, Judge Rakoff’s 50-page Opinion and Order established that Terraform Labs’ TerraUSD (UST) and LUNA sales could very well violate U.S. securities regulations.
The U.S. judge referenced the Ripple case verdict, voicing significant dissent, noting that the Howey Test overlooks the differences between retail and institutional investors. An excerpt from the memorandum states:
Howey makes no such distinction between purchasers. And it makes good sense that it did not. That a purchaser bought the coins directly from the defendants or, instead, in a secondary re-sale transaction has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts.
Judge Rakoff’s Critique Of Howey Test Stirs Doubts Over Ripple’s Legal Victories
Of significant note was Judge Rakoff’s emphasis on the Howey Test, highlighting that it does not distinguish between retail and institutional investors. His comments have led to considerable speculation over the solidity of Ripple’s previous courtroom victories.
The crypto community is now grappling with the implications of the Terraform ruling on Ripple’s partial triumph against the SEC. David Schwartz, Ripple’s Chief Technology Officer, however, remained optimistic. Tweeting on August 1, Schwartz suggested that case-specific nuances could have swayed the Terraform decision.
He also indicated that the stark departure from the Ripple ruling might have been influenced by the distinct facts of each case. With the SEC hinting at a potential appeal after Terraform’s motion to dismiss on July 21, the Ripple community remains highly alert.
Adding to the intrigue, John Reed Stark, former SEC Chair of the Office of Internet Enforcement, commented earlier this month that the regulator winning in the Court of Appeals, though challenging, would not be unprecedented.
As the plot thickens, both XRP investors and the broader cryptocurrency sector remain watchful of the next steps in the Ripple v. SEC saga.