SEC contests Ripple’s security status, citing complex legal issues, as the crypto industry closely observes the case’s regulatory consequences
In a legal showdown that continues to captivate the cryptocurrency world, the U.S. Securities and Exchange Commission (SEC) has made a significant move in its ongoing battle with Ripple Labs. The SEC has filed a motion urging the court to grant its appeal request concerning a ruling in the Ripple Labs lawsuit, which declared that XRP was not a security when sold to retail investors.
The SEC’s central argument hinges on intricate legal challenges surrounding the court’s interpretation of the Howey Test. This test is crucial in determining whether an asset qualifies as a security. It evaluates investment characteristics, influencing support classification, particularly in cryptocurrencies like XRP.
According to the report, dated September 8th, the SEC is urging the U.S. District Court for the Southern District of New York to not only grant its motion for interlocutory appeal but also to “stay further proceedings until the resolution of that appeal.”
SEC’s Shifting Stance On Ripple And Programmatic Sales
In a noteworthy decision handed down in July, Judge Analisa Torres ruled that XRP generally did not meet the criteria for being considered a security under SEC guidelines, particularly when distributed through programmatic sales, such as those conducted on cryptocurrency exchanges and sold to retail investors.
However, the latest filing contends that the court’s rulings on programmatic sales and other distribution methods raise “legal questions” significant enough to warrant approval for the agency’s interlocutory appeal. These legal ambiguities, the SEC argues, stem from the need for more clarity surrounding whether certain cryptocurrency assets can be classified as investment contracts under the Howey Test.
Interestingly, these arguments are at odds with previous statements made by Gary Gensler. Gensler has consistently rejected the need for new cryptocurrency regulations, asserting that the SEC’s existing guidelines comprehensively cover the entire crypto market, with most cryptocurrencies falling under the category of securities.
In a pointed response to the appeal, Ripple’s Chief Legal Officer, Stuart Alderoty, decried the move as “hypocritical.” He emphasized the irony of the SEC’s sudden urgency in addressing the “knotty legal problems” despite years of affirming clear and non-negotiable rules.
Adding to the discourse, Coinbase’s Chief Legal Officer, Paul Grewal, questioned how cryptocurrency firms can operate under a “fair notice” framework when unresolved legal questions are deliberated in the courtroom.
The SEC initially sought to appeal and stay Judge Torres’ decision in August, citing “substantial ground for differences of opinion.” In response, on September 1st, Ripple Labs filed a memorandum of law in opposition, asserting that the SEC’s grounds for appeal were unsubstantial.