Ripple’s Recent Victory Against the SEC Might Not Be Long-lasting, According to Legal Expert
The news of Ripple’s recent partial victory against the Securities and Exchange Commission (SEC) in a nearly three-year legal battle has brought great joy throughout the crypto industry. However, according to legal expert Bryan Jacoutot on Twitter, this victory may be short-lived as the SEC has enough grounds to appeal the decision and prolong the case even further.
The SEC filed a lawsuit against Ripple Labs in December 2020, alleging that Ripple had conducted an unregistered securities offering worth over $1.3 billion through the sale of XRP. According to the SEC, XRP qualifies as a security under federal securities laws. However, on June 13th, the court found that the “programmatic sales” of XRP to regular investors did not constitute the sale of an unregistered security under the Howey test.
Sales to institutional investors, on the other hand, fall under the Howey test, which is used in the United States to determine whether a transaction qualifies as an investment contract. In this case, the court determined that unlike institutional investors who would expect this, regular investors could not know that Ripple Labs was selling them XRP to improve the Ripple ecosystem.
According to Jacoutot, the court’s reasoning is weak, and the Howey test was misapplied in this case. The court concluded that regular investors bought XRP knowing that it is subject to general trends in the cryptocurrency market, particularly the secondary sale of XRP tokens. However, Jacoutot believes that those who buy XRP would also expect to profit from Ripple Labs’ efforts.
The lawyer also made a comparison to the Ethereum Foundation’s case, as anyone who participated in the presale of ETH knew they were buying from the Ethereum Foundation. Considering the XRP decision in a similar manner would mean that institutional investors of the ETH presale also bought unregistered securities.
According to Jacoutot, the ruling opens up some loopholes that can be exploited. In a tweet, lawyer Joe Carlasare explained that the logic of the ruling allows for the lawful launch of a pyramid scheme. In this case, profits from the programmatic sales to retail investors can be distributed to institutional investors.
Ripple CEO Brad Garlinghouse has called the ruling a relief and stated that the company can now promote the various use cases for Ripple and its technology without worrying about legal consequences.
This is definitely a win for Ripple, but an appeal from the SEC could delay the legal battle for years and trigger another round of significant uncertainty in the crypto market.
Following the ruling, the price of XRP skyrocketed. It has risen by 50% this month and is currently trading at $0.7154.
Overall, while Ripple’s recent victory against the SEC is cause for celebration in the crypto industry, the possibility of an appeal and prolonged legal battle could bring about further uncertainty in the market.